Consolidation Loan
Description
A consolidation loan is where you take out one loan to the value of all your debt, pay off each of your creditors, and you are left with only one payment to make each month. Your debt amount is not reduced, however it can enable you to reduce the interest rate overall reducing the total you pay back.
Eligibility
You will be struggling to meet current repayments to creditors. Your debt level may be below the amounts usually required to enter an IVA (or Trust Deed in Scotland). You must have a certain amount that you can pay on a regular basis to clear your debt.
If you can afford to pay £100 per month or more, a consolidation loan might be a good option for you.
Advantages
- Takes the pressure off
- Good option for people who can afford to make regular payments to their creditors and want an easy, hassle free way to pay
- Can allow you to negotiate an improved interest rate by consolidating all your debts to one lender and reduce your monthly payments to match your disposable income
Disadvantages
- Does not reduce your overall debt and can increase it
- Extending the period over which you pay for your debt, to reduce monthly payments, is very likely to increase the overall amount you pay
- Your home may be repossessed if you do not keep up monthly repayments. Loans are secured on your home