Loans for debt consolidation are intended to ease the financial burden faced by many borrowers today. Aimed at those juggling multiple repayments on different loans or credit cards, debt consolidation loans help customers to manage their debt by leaving them with only one monthly payment, rather than many.
What is Debt Consolidation?
Rather than struggle to make the required minimum monthly payments for each debt, borrowers can opt for a debt consolidation loan to transfer any money owed onto one loan with one simple payment. A person will obviously still have to repay roughly the same amount of debt, but a consolidation loan can reduce monthly outgoings, reduce interest payments or spread the costs over a longer period of time (though this latter option can mean more money has to be paid back due to additional time for interest-based loan charges to accumulate).
The majority of personal loans on the market today can be used as a loan for debt consolidation. The two main types of loans, unsecured loans and secured loans, can both consolidate loan payments. These loans are especially useful for paying off payday loans, same day loans or other similar short term loans as the interest rates charged are likely to be much lower.
Unsecured Debt Consolidation Loans
Unsecured debt consolidation loans are simple options to help repay debts like payday loans and short term loans as a borrower is only required to make a monthly payment without providing any collateral, though interest payments could remain quite high.
Secured Debt Consolidation Loans
In contrast, secured debt consolidation loans require borrowers to use property as security against the loan to reduce the lender’s risk of losing their money.
To get either a secured debt consolidation loan or an unsecured debt consolidation loan, a debt consolidation company or standard lender will assess how much debt the applicant has outstanding and any risks they impose. If the person has a poor credit rating, they may only be considered for a loan on a secured basis.
Debt Consolidation Loans for Bad Credit
For many who take out debt consolidation loans, bad credit is usually the reason. Debt consolidation loans for bad credit make it possible for those feeling overwhelmed by the state of the finances to gain greater management over them. With some debt consolidation loans, no credit check is carried out. This type of bad credit debt consolidation loan aims to help improve a person’s credit rating as if they move all their debts in one place so they always know how much they owe: as with other bad credit loans, this will have a slow but positive impact on their credit score if the borrower keeps up with the regular payments required.
However, customers of bad credit debt consolidation loans should proceed with caution as if they cannot keep up consistent monthly payments, any property they have secured against this loan will be at risk.
Low Interest Debt Consolidation Loans
Many low interest debt consolidation loans can be found by looking amongst the right lenders (such as banks, building societies, peer to peer lenders or other online lenders) or specialised debt consolidation companies (note that these are not the same as debt management companies). If a borrower’s debts are currently on a high rate of interest, consolidating them on a new loan with competitive interest rates can save them a great deal of money.
Compare Debt Consolidation Loans
As consolidating multiple debts can be a huge task, borrowers will want to ensure they get the best debt consolidation loans available for them. Before applying for debt consolidation loans online, customers are encouraged to compare debt consolidation loans to see which one is more suitable for reducing their monthly outgoings. It is also wise to consult one of the many sources of free debt advice available before taking on a new credit agreement: some debt consolidation loans may not be as attractive as they first appear, and some debt consolidation companies may charge a fee for their service, in which case they should be avoided.