Consolidation Loan

What is a consolidation loan?

A Consolidation Loan takes out one big loan to repay a number of smaller ones. Because the new loan can often be repayable over a longer period, the repayments on the consolidated loan are usually a lot less than the sum of all those relating to the smaller loans. Beware of Early Repayment Penalties when considering a consolidation loan.

Consolidating your existing debts into one smaller monthly repayment is often advertised as all that is needed to put an end to the stress-inducing demands made by nagging creditors. But consolidating existing credit commitments should not be considered a cure-all. If used properly it can help you get debt-free faster. But if there are more serious underlying problems, then it may only grant temporary relief before the creditors start their hounding again.

Debt Consolidation may be right for you if you`re paying high interest charges on your existing debts and want to switch to a cheaper alternative if you need to reduce the size of your monthly payments, perhaps because of a reduction in income. Alternatively, if you need to release additional money to meet unexpected commitments, it can free up extra cash from your home while ensuring your monthly repayments don`t increase.

A debt consolidation loan is NOT the answer if you`ve already consolidated your debts several times in the past, if this consolidation loan includes debt still owing from previous consolidations or if you want to move debts from credit and store cards so that you can start using those cards again.

If you are struggling with debt, you can get free, impartial advice from our Debt Advice Centre.


Q: Are consolidation loans bad?

A: They are not inherently good or bad- they can be helpful for some customers, but for others they can make a bad situation worse.

Jargon Buster

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