Bad Credit Consolidation Loan

What are debt consolidation loans?

More and more people are turning to consolidation loans as a means of managing debt. It is not uncommon for a typical individual or family to have either credit cards, store cards, car and home improvement loans. Different rates of interest will often apply and these can range from 0% to over 30% interest annual percentage rate. A debt consolidation loan can pay all off all existing borrowings by combining all debts into one. The advantage is that a lower average interest rate may apply which could save money in the long term.

Do you have an adverse credit history?

The accumulation of multiple debts such as personal, unsecured tenant loan, or homeowner loans, credit cards, store cards and car finance repayments can sometimes cause monthly instalments to be missed for entirely innocent reasons. If loan repayments are missed or arrears build up because the levels of interest charges are too high, this may be recorded by credit referencing agencies. Bad credit debt consolidation loans may provide a solution to managing finances especially if you are self employed with no proof of income via annual accounts and therefore find it difficult to obtain credit.

A simple hypothetical example of how a debt consolidation loan could work is as follows;

Michael has three different types of borrowing. The first is his Visa card. He has £2000 balance on his credit card. At 15% interest annual percentage rate he is paying £300 interest per year.

His second type of borrowing is a car loan. This is £5000 at 10% APR. He therefore pays £500 interest per year for this.

The third type is money he borrowed for a cruise holiday. The loan company charges him 20% interest on the £1000 he took out. This means £200 interest is paid per annum in total to all of the creditors every year. In total, the interest rate is £1000 per year on the total amount of money borrowed, being £8000.

If Michael were to take out a bad credit debt consolidation loan with an interest rate of 10% the total interest charged per annum would be £800 per annum compared to the £1000 per annum he would incur by continuing with each loan separately.

Before considering applying for a debt consolidation loan, always check to see whether there are any redemption penalties with existing finance and don’t hesitate to seek out free independent advice from organisations such as the Citizens Advice Bureau and debt helpline.