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Debt Consolidation
If you have borrowed money from several different sources and are worried about the monthly repayments, then with the right advice, it may be possible to find a different kind of finance arrangement that allows you combine all your debts into a single, lower monthly payment - even if you have bad credit, CCJs or have previously been refused a loan.
The idea of debt consolidation is to obtain a fresh loan that will allow you repay all your existing credit card and other expensive borrowing and loans, so all the current debts are combined together into one simple loan agreement. The new loan would typically be at a lower interest rate and should therefore help to reduce the total monthly outgoings, so you can get your finances under control. This type of scheme is usually available only if you own your own home and have an existing mortgage, in which case you may be advised to refinance the property by taking out a new mortgage with a different lender.
There are two main reasons why the monthly repayment on a secured loan (ie a mortgage) can cost less than all the separate payments on various unsecured loans, such as credit cards and store cards:
1) The secured loan has a lower rate of interest because you are offering the lender your own home as added security, which means that if you default on the loan (ie if you fail to keep up with the monthly repayments) then the lender has the legal right to sell your property in order to recover the money that you owe.
2) Unlike credit cards and other unsecured loans, where you can usually choose to repay the debt whenever you like, a secured loan is designed to be repaid over an extended period of time (typically 5, 10, 15 or 20 years) and you must carry on making the correct payments regularly each month for the whole period.
With a debt consolidation loan you are therefore giving up the convenience of being able to repay credit cards and other unsecured loans more or less when you like, but at a high rate of interest. On the other hand, even though the new mortgage is for a larger sum of money, this allows you repay all the old debts and therefore reduce the total outgoings each month, but you have to accept the discipline of keeping up with the agreed monthly payments for the entire period of the agreement.
It is important to understand that a "secured loan" is a loan where the person borrowing the money offers assets to the lender as security for the loan. With a debt consolidation loan, the asset being offered as security is the borrower's own home and the loan is therefore referred to as a "mortgage". As with any mortgage, if you fail to keep up the monthly payments, then the lender can legally take possession of your home and sell it in order to raise money and recover the debt owing.
This is a serious legal commitment and you need to think carefully before making a decision, so getting professional advice from an independent expert could save you time, money and worry.
For further information click here for independent mortgage advice and quotation.
NOTICE: A mortgage is a loan that is secured on your home and you also need to think carefully before securing any other debts against your home. Your home could be taken away by the lender and sold if you do not keep up the repayments on the mortgage or any other debt secured on it - if you are in any doubt, seek independent professional advice. These notes are offered as a general guide only and do not constitute mortgage or legal advice.
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