Consolidation Loan FAQs
It's fair to say that most people will try to consolidate their debts with a Consolidation Loan as their primary solution. That's because lenders have conditioned us to do so, to keep the growing cost of our debt under control.
Restructuring multiple 'expensive' debts into a 'more affordable' monthly repayment will often seem the obvious answer.
But how do we know when consolidation is the right solution, as opposed to a 'none borrowing' option like an IVA?
Understanding how Consolidation Loans work, including recognising their limitations, will be essential if you're going to make the right decision on how best to deal with your debts.
To help you with this decision, we've brought together the most frequently asked questions relating to Consolidation Loans, in the hope it'll help you recognise the issues at hand.
Consolidation Loans Frequently Asked Questions
Where we felt it was necessary to give a more in depth answer, we will have written a dedicated article. To read any of those articles simply follow the link where you see the highlighted phrase 'Read more'.
What is a Consolidation Loan?
A 'Consolidation Loan' is the name given to a loan that restructures existing debts to a more affordable payment.
Consolidation loans provide the mechanism to pay-off expensive debts, such as store cards, credit cards or overdrafts using funds provided by the loan, leaving a lower monthly loan repayment to be paid back over a pre-agreed fixed term. Read more.
Back to FAQsHow does a Consolidation Loan work?
The consolidation loan repays the restructured debt over a pre-agreed time, at the end of which the debt is fully repaid. Because there is a fixed term to the loan, the interest is embedded into the monthly payments, giving a preferential rate, compared to that of open ended credit cards.
A consolidation loan should not be confused with a 0% credit transfer from one credit card to another which is an open ended credit agreement.
Back to FAQsHow long will it take to repay a Consolidation Loan?
The term of the loan will be defined by a couple of factors. The first being the amount you want to borrow and the second being how much you can afford to repay each month.
Generally speaking, repayments to the loan will lower as the term of the loan increases. In essence you will be repaying less money each month but for a longer period.
The decision on how to structure the loan will be down to you, but you should be careful not to over stretch yourself.
Back to FAQsWho can qualify for a Consolidation Loan?
Qualification will be dependent on your credit rating, the amount you want to borrow and your ability to demonstrate you can afford the repayments.
The more money you need to consolidate, the more money you'll need to borrow, the longer it will take to repay. Your bank will be keen to ensure you have the means to meet the commitment and would normally base that decision on your credit rating.
Back to FAQsConsolidation Loan or IVA?
Chances are this decision may be made easier for you by your bank. If your application for a loan has been rejected by your bank, you'll know you're reaching the extent of your creditworthiness.
When that happens, you'll need to search for a 'none borrowing' option like an IVA, if you are still struggling to afford your monthly payments to your debts.
Application for an IVA will become a viable solution because qualification is not based on your credit score, for the simple reason that an IVA doesn't require you to borrow any money. Read more.
Back to FAQsWill a Consolidation Loan write-off any debt?
No, a consolidation loan repays the full debt, you are just restructuring the repayment of your existing debt, normally over a longer period but at a cheaper rate of interest.
Back to FAQsWhat if I cant afford my repayments?
You should think very carefully before committing to a consolidation loan, just as you should before you commit to any legally binding agreement.
If you are unable to maintain your scheduled payments, the creditor will have the right to take legal action against you for the immediate recovery of the outstanding balance.
If the outstanding balance is greater than £750 and you are unable to reach an amicable agreement with the creditor, they could take legal action against you that, ultimately, could result in you being made bankrupt.
Back to FAQsWhich is best, a Consolidation Loan or DMP?
Debt consolidation loans are very useful if you are simply trying to reduce your monthly outgoings and they can provide a structured alternative to repaying expensive 'stagnant' credit card debt, being repaid with minimum payments.
For most people, consolidation loans provide a better alternative to that of a Debt Management Plan.
But, when a consolidation loan is unavailable, perhaps due to affordability or credit rating problems, a Debt Management Plan can provide a similar service of reducing the monthly cost of expensive debts.
Debt Management Plans will damage your credit rating and, unlike an IVA, won't provide a debt write-off but, for many, they will take care of the problem.
Back to FAQsGet A Professional Opinion
When facing the decision of which debt solution to choose, you should seek an independent professional opinion.
We can explain your options to you in straight talking plain english, then leave you to make your own mind up on which solution you want to choose.
So, to have a private consultation with a professional adviser, simply call 0800 088 7502.
Or, alternatively, complete this form and one of our advisers will call you at your preferred time.
