Consolidating your debt refers to paying off
multiple debts with one larger loan so that you are just left with the one
single debt. Secured loans tend to be used to borrow larger sums – above
£10,000 to £15,000 but can be for lower sums.
Benefits and Risks
You need to be clear on the short and long term
benefits plus the risks of converting unsecured debt into a debt that is
secured against your property. It is utterly crucial to have a good
understanding of your financial position so you can properly understand the
benefits and risks.
- As secured loans are lower risk for the lenders, the interest rates charged are much lower than loans which are unsecured.
- The loans tend to stretch over longer periods than unsecured loans – 10 to 15 years which again can lower payments.
- Protects your credit rating compared to a debt solution
- The loan is secured against your house and if you fall into serious arrears, your house is at risk
- If the interest is variable your payments could increase.
Applying for a Secured
Secured loans are generally sourced through brokers
who are regulated by The Financial Conduct Authority, “FCA”. The process
generally starts with an online application or a discussion over the phone. The
broker must ensure that you have sufficient equity in your property and you can
afford the repayments.
Brokers have a variety of tools available to check
your information including credit searches, online valuations and “open banking” (facility
which allows you to share transactions through your bank account).
not want to lend if your circumstances are precarious.
Consolidating with a
secured loan only makes sense if:
- The loan
clears all of your debts.
- You must be
able to afford the monthly repayments comfortably.
- The loan repayments
are lower than your current debts combined.
If you do not meet all of these points you may need
alternative debt help rather than a consolidation loan which could put you in a
Why might using equity in your
property NOT be a sensible way to consolidate your debts?
Taking unaffordable or hard to juggle unsecured
debts and voluntarily securing them to your property is potentially putting
your home at risk. If you cannot keep up with the repayments you may lose your
Based on your current circumstances the repayments
may be affordable however, we can all take from this past year that we do not
know what is around the corner and if your circumstance do change and you are
no longer able to afford that repayment the secured lender may start legal
proceedings to take possession of your home.
Can The Debt Advisor advise
on the merits of a secured loan?
Yes but we will also look at all your options. We
will help you understand your financial position, go through a budget with you
and explain all options to you including:-
- Budgeting, possibly reducing outgoings to improve
- Consolidating debt via unsecured or secured loans
- Informal payment plans such as Debt Management “DMP”
- Formal payments plans such as Individual Voluntary
To discuss alternatives to debt consolidation you
can speak to a member of our Advisory team who will be able to discuss all
appropriate solutions with you.
If we do help you with a secured or unsecured loan,
we may earn a commission.
Give us a call on 0800 085 1825 for more