What is a cheap consolidation loan?
A consolidation loan is best described as a new loan which is large enough to pay off all of your other debts, leaving you with one single monthly payment.
Ideally this new payment will be lower than you we’re paying before but for some people being able to put all their debts into one place making them easier to manage is enough.
A consolidation loan doesn’t always have to cover more than one debt, many people will chose to take a cheaper consolidation loan to pay off a single existing personal loan to reduce their monthly payments either by getting a lower typical apr or by extending the loan term.
Ideal consolidation loans.
In an ideal situation your consolidation loan will leave you paying less (with a lower monthly payment) than you had before you consolidated. Ideally also at a lower total cost (when you have paid off all your debts and are debt free) than before you consolidated.
Do consolidation loans have to have a lower typical APR?
No, as for many people consolidation is simply a way of making life affordable and manageable. Consolidation loans often work by extending the term of your debt leaving you paying a lower debt payment each month, this can work even if the typical apr rate is higher than you were paying before (although you should always try and get a lower rate where possible).
For some people simply having a lower monthly payment can be enough to convince them to consolidate. For example if you are paying £300 per month for your debts now and a new consolidation loan will leave you paying £150 consolidating is worth considering (as long as you understand that extending the term of the loan can leave you paying more in total to clear your debt).
What can I ‘wrap up’ in a consolidation loan?
A consolidation loan will normally be in the form of a secured or unsecured personal loan so you have the option to cover anything you like. This could include debts to family members, car loans, household bill and any other money you owe although the most common uses for consolidation loans are to pay off credit cards, store cards and existing loans.
Credit card consolidation.
Many people chose a consolidation loan to pay off their credit cards as if you pay only the minimum payment each month to the credit card company it can take years to make a dent in what you owe.
Credit cards tend to have high APR’s of around 15% so it is normally easy to find a cheaper consolidation loan making consolidating credit cards an attractive option.
What kind of consolidation loans are available and what will be the cheapest?
The most popular way for people to consolidate is to take a personal loan (some people will consolidate their debts using credit cards but this can often leave you with higher payments).
The most common options are unsecured loans and secured loans. There are hundreds of loan plans available in the UK and consolidation loans come with some of the most attractive low rates.
For homeowners the cheapest option with the most flexibility tends to be a secured personal loan. This give you the option of higher loan amounts and longer repayment times should you need them - homeowners also have the option of unsecured homeowner loans although these can have slightly higher rates and more limitations.
For tenants the main consolidation option is an unsecured personal loans and there are while the maximum you can normally borrow on a tenant loan is £25,000 there are some great deals available.
Bad credit consolidation loans.
Bad credit need not be a problem if you are looking to consolidate as lenders may see it as a good step that you are trying to reorganise your finances with a bad credit loan. There are plenty of lenders who are willing to lend to people with credit problems (such as ccj’s, mortgage arrears and defaults).
How do I find the best consolidation loan for my circumstances
There are so many lenders with hundreds of loan plans in the UK and it can be easy to miss the best deals. A regulated loan broker can help you to avoid the more expensive loans that lenders may try to sell you and can help source cheap loans tailored to your circumstances.
Decisionloans.co.uk offer a free loan search that covers hundreds of loans to help you find the right deal.