Many people have accumulated unsecured debt over the years, which for some becomes more difficult to manage and puts them under financial pressure. Consolidating all your debts into a single monthly payment can help and this is what is known as a debt consolidation loan.
Many people try to get debt consolidation loans in UK. While it might be a great help to get a consolidation loan, but there are a few things to consider and a few disadvantages to take note of.
What is a Consolidation Loan?
As already mentioned, a debt consolidation loan is a type of loan to pay off all your unsecured debts like credit card loans and store card debts. After paying your debts off, you are required to pay a single instalment to a single lender.
Pros of Debt Consolidation Loans
There are a lot of different advantages of a consolidation loan, including:
- If you are under a financial burden of paying different instalments to different lenders, a consolidation loan might help you better manage your finances.
- Since you only have one debt to pay, your money will be easier to manage and can help with long-term planning.
- Potentially a new loan will have a lower interest rate compared to expensive credit cards.
- Over time, your creditworthiness may improve if you manage your expenses better. It takes time, and many factors play a role in influencing your performance, such as being on the voter list.
Cons of Consolidation Loans
- If you consolidate unsecured debt such as credit cards and take out a secured loan, and not be able to pay off your payments, your home may be foreclosed.
- If the new loan is longer than your existing debt, it may cost you more in the long run as you pay interest over a longer period.
Documents Required for a Debt Consolidation Loan
This depends on whether the loan is unsecured or secured. For example, unsecured loans with your bank are much quicker and less complicated as they already have a relationship with you and can view your bank statements.
If you are looking for a secured loan you will need to provide:
- Proof of ID – Passport or Driver’s License
- Proof of Income – 3 month pay slips if you are employed or past accounts if you are self-employed
- Bank Statements – Last 3 months to confirm your expenses
- Valuation Report – Since your property is being used as collateral for the loan, the lender would want the property to be valued.
As you can see, there are many factors to consider and you should not hasten this decision of availing a debt consolidation loan. You must always talk to the experts of Debt Consolidation Loans UK first and take their expert advice before taking any decision.