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Debt consolidation companies

Debt consolidation firms are lending companies that aim to allow you to transform many smaller, individual loans into a larger more manageable loan. The idea being that it is easier to keep on top of your repayments if you only have one loan to think about and budget for than it would be if you had many different ones with different levels of interest on each.

Before they grant you a loan, a debt consolidation company will have a look at the state of your finances and the level of your debt in order to gauge how likely you are to manage a repayment. Their valuation of your level of risk will impact how much they are willing to give you and also the level of interest that you will be asked to pay. There are a variety of different factors that will affect how a potential lender will assess you as a borrower. Being aware of these factors and improving in these areas will make it more likely that you will be able to get a far more competitive deal.

This guide will take you through each of the areas that a prospective lender will take into consideration before deciding on what type of deal they will offer you.

In This Guide:

What to consider when taking out a debt consolidation loan

One thing that you will want to think about before even applying for a loan, is which debt consolidation company you want to apply to. There are a huge amount of different debt consolidation companies in the UK and some are certainly more appealing than others. For this reason it is important to do your research before you jump into an agreement with any one firm. Like any marketplace it is important to shop around first in order to allow yourself to make an informed decision.

The next thing that you think about should be your credit history. If you have a poor record at making repayments or have fallen behind on bills in the past, your credit rating will have been affected negatively. If you have a poor credit rating, it is likely that you will be charged a higher level of interest than someone who does not. This is because debt consolidation firms and other lenders will consider you less likely to keep up with your repayments if you have a poor track record.

Lenders will also ask you for information about your level of income and about your expenditure in order to gauge whether or not they think you will be able to afford your repayments.

Debt consolidation with secured loans

One of the options that you will be given when you approach a debt consolidation company is whether to take out an unsecured loan or a secured loan. It is advised that you should choose to go for an unsecured loan over a secured loan. This is because secured loans involve putting up your house or other assets as insurance against you failing to make your repayments in full.

If you secure a loan against your property, you are providing your permission for your lender to take possession of your house or whichever property you used as security. Once they have done this they are entitled to sell it on in order to pay your debts. It is for this reason that unsecured loans are preferable as they do not put your property on the line.