PLEASE NOTE DEBT SOLVO LIMITED ARE NOT ADVISORS ABOUT OBTAINING LOANS OR OTHER FORMS OF FINANCE. WE ARE NOT QUALIFIED OR AUTHORISED TO GIVE SUCH ADVICE. IF YOU DECIDE TO PURSUE THIS OPTION YOU MUST SEEK YOUR OWN INDEPENDENT LEGAL AND FINANCIAL ADVICE.
What is it?
Fundamentally, you take some or all of your existing unsecured debt and re-finance it into another consolidation loan, possibly extending the term of the loan over a longer period in order to re-pay everything that is owed. In certain circumstances, unsecured debt may be turned into a secured debt (for example secured against an asset such as a house or a vehicle) which would then give that lender certain rights over what happens to the asset in the event that you default on the re-payments in the future.
Individual lenders have their own individual rules about credit scores and who they will lend to. It is a complex decision based upon each potential borrower’s individual circumstances. As all circumstances are unique and all lenders have differing criteria, it is not possible to state what qualifying criteria would be.
How it can Happen
You approach a financial adviser specialising in consolidation or approach a potential lender to seek consolidation finance. You then need to be very strict with yourself and close down all lines of credit that have been bundled into the consolidation loan.
Costs to you
A financial advisor may well charge you a fee for providing financial advice and / or they may receive a commission from whichever organization they recommend you to approach. There may be an arrangement fee. There will be interest to pay on any re-finance.
This may avoid formal individual insolvency processes.
If successful, it may even improve your credit ratings in the future. It may not.
Generally, it does not solve a debt problem, but usually stretches it through a longer period of time. Quite often it will provide you with time to re-pay all of the monies owed.
Disadvantages of a Consolidation Loan
Credit Rating – You may not qualify for a consolidation loan, because of your current circumstances.
Usually No Debt Relief – Consolidation Loans often do not provide any form of debt relief. You are paying back everything your currently owe in a differently structured form of finance. Essentially you swap one type of debt for another type of debt.
Paying More in the Long Term – Consolidation loans are often taken over a longer period of time – incurring additional interest and charges.
Self-Discipline – It takes a huge amount of self-discipline to ensure all of the accounts that are consolidated into a single loan are then closed, to stop you using their credit lines again.
Converting Unsecured Debt into Secured Debt – In certain circumstances a consolidation loan may be secured on a property, and therefore you may be converting unsecured debt into secured debt – with all of the associated risks to the asset on which it is secured.