Guide to Debt Consolidation Loans
Before you start comparing debt consolidation loans you need to decide whether you
want to use your home as security, if indeed you own your home. If you don’t then
you will probably be quite restricted as to the amount you can borrow and the typical
APR you have to pay will undoubtedly be higher. Once you have decided you can use
the following points to compare the debt consolidation products available to you.
1. The Typical APR
The typical APR on a debt consolidation loan depends on a number of factors. These
include the amount your want to borrow to consolidate your existing debts, the length
of the repayment period and the state of your credit rating and your current finances.
In general, the more you borrow the lower the APR is and a good credit rating can
reduce the interest rate even further.
When you compare the APRs though remember to take into account the number of monthly
repayments you have to make to get that rate. A lower interest rate over a longer
period of time can often work out more expensive than paying a slightly higher interest
rate for fewer years.
2. The Arrangement Fees
The arrangement fees can vary quite dramatically from one lender to another. This
is because some lenders insist that they organise the end payments to your creditors.
This way they know that any credit cards, hire purchase agreements and personal
loans are repaid in full and that you haven’t gone on a wild spending spree with
your debt consolidation loan.
If you intend to use your property as collateral for your loan then you’ll also
be charged valuation fees as part of your arrangement fees. These are also variable
and should be a point worth noting.
3. The Redemption Penalties
As a seasoned borrower you’ll probably know about the pitfalls of early redemption
penalties. Should you decide to repay your debt consolidation loan before the official
end date of the credit agreement then you will be charged a rather large fee. Again,
these vary greatly between lenders and they need to be compared along with any other
fees and charges you think you might incur during the terms of the loan e.g. missed
or late payment charges, declined payment charges etc.
If there is very little chance of you paying the loan off early then the size of
the redemption penalty isn’t that important but if you like to swap lenders on a
regular basis (to take advantage of special offer interest rates) then this type
of fee should be a consideration.
In summary, the terms and conditions of debt consolidation loans do tend to vary
from one lender to another so it is important to compare all of the aspects mentioned
above. This is especially true if you’re thinking of securing the loan on your home
as a surprise down the line could result in you loosing everything.