If you have any equity whatsoever tied up in your home, you may qualify for a secured loan. Even if your equity level is just 5% or 10%, it may still be possible to access a competitive deal.
But does this mean that consolidating other debts with a secured loan is a good idea? If a secured loan is not an option, what alternatives are available for debt consolidation?
The benefits of consolidating debt with a secured loan
One of the main benefits of a secured loan is that you can borrow considerably more than would be available with a personal loan. Secured loans are typically available for sums of £20,000 and more, making them a viable option where a person’s debt level is relatively high.
Whether a secured loan could reduce your monthly outgoings depends on a variety of factors. The most important of which is the length of the loan term, which could be anything from five years to 35 years. The longer the repayment period, the lower the monthly repayments, but the higher the overall borrowing costs.
An individual struggling to keep up with multiple debts and monthly repayments they cannot afford could find a secured loan an affordable and accessible solution. All with the added bonus of safeguarding their credit score, which can sometimes be affected when applying for specialist debt consolidation products.
The drawbacks of consolidating debt with a secured loan
Secured borrowing is considered a higher risk for the customer, as it is necessary to offer an asset (usually your home) as security against the loan. The asset serves as an insurance policy for the lender, who has the legal entitlement to take possession of your property if you fail to meet your repayment obligations.
It is therefore important to consider your current and projected financial situation carefully when considering securing a loan against your home. While most lenders will make every effort to avoid repossession when borrowers fall into arrears, you risk losing your home if you cannot repay your loan.
What are the alternative options available?
A personal loan could be a viable option for consolidating debts totalling no more than £10,000. You will need an excellent credit score to qualify, and you must be able to provide a full disclosure of your current financial circumstances.
Remortgaging is also an option, wherein you effectively increase the value of your existing mortgage to tap into the equity you have tied up in your home. This can be an affordable, long-term solution, often taking just a few days to organise.
Specialist debt consolidation loans are available, though they have the potential to adversely affect the customer’s credit score. Likewise, some consolidation products have high rates of interest and elevated overall borrowing costs.
To find out more, please contact a member of the team at BridingLoans.co.uk; we are waiting to help.