Using Debt Consolidation to Make the Outstanding Debt More Affordable

Going into substantial debt is more common than some would think. Generally speaking, most businesses have at least one moment during their lifespan when they are forced to take out multiple loans or lines of credit that need to be repaid monthly. As for regular individuals, overusing credit cards, getting a HELOC or a personal loan can often lead to a large outstanding debt that can become quite expensive over time.

Most are aware of the fact that debt consolidation loans are the best way to make all their outstanding debt more affordable. However, many individuals do not know how to use the money that they get through it. Improperly using a debt consolidation loan can leave one in a delicate situation where one would have to make additional loans and be forced to pay both the debt consolidation loan, as well as the newly created debt. This having been said, what is the best way to use debt consolidation? Before answering this question, it is important to understand what a debt consolidation loan is. 

What Is a Debt Consolidation Loan?

Debt consolidation loans are secured or unsecured loans that are designed to help borrowers fuse their existing debt into one. For example, if an individual has a maxed-out credit card, a personal credit (secured or unsecured), and a line of credit, each of these forms of debt will have a different monthly repayment date and separate interest rates. Having to keep track of all of these is often extremely difficult, and the different interest rates can make the overall debt expensive.

A debt consolidation loan is designed to help an individual repay most or all of his current outstanding debt and be left with only this new loan that must be repaid. In other words, he is left with a single form of debt that has one monthly repayment date and one interest rate.

What Are Do’s and Don’ts of Debt Consolidation Loans?

As useful as debt consolidation loans may be, by design, some make the mistake of wasting the money only to find themselves back where they started.

What Borrowers Should Do?

  • Determine the Cost of Each Type of Debt – Organising and understanding one’s debt is extremely important. This requires that borrowers determine the exact cost of each type of debt that they have to repay to establish which ones should be covered first;
  • Repay the Most Expensive Loans First – Focus on repaying the most expensive types of debt first. Some debt consolidation loans may not be large enough to allow borrowers to consolidate all of their debt. However, they should be enough to cover the loans with the highest interest rates;
  • Boost Your Credit Rating before Applying for a Loan – Debt consolidation loans are only useful if they have an interest rate that is lower than the total cost of the debt meant to cover. To ensure that you’ll get a great deal from the lender, it is important to boost your credit score by any means possible. Refrain from taking out payday advances, do not use credit cards at least a few months before applying for a loan and use the many in your savings accounts to lower your credit utilisation ratio;

What Borrowers Should Not Do?

  • Do Not Use the Money for Debt That Is Not Urgent – Some debt consolidation loans can also be used to pay for forms of debt that are not created through loans or lines of credit, such as home renovation bills;
  • Do Not Ignore Variable-interest Debt – Some borrowers tend to consolidate expensive high-interest loans and leave variable-interest ones hoping that they will become cheaper in the future. In reality, these are the first ones that should be repaid as they make it nearly impossible to set up repayment budgets and to balance one’s income and expenses;
  • Do Not Consolidate Debt If It Is Not Needed – Debt consolidation loans are often long-term loans and should only be used if the existing debt is too expensive. Generally speaking, these loans are not taken lightly by lenders and will lower an individual’s credit score considerably, essentially decreasing the probability that he will be able to take out other loans in the near future;

5 Top Reasons to Opt for Instalment Loans

Instalment loans have become an option for people that need cash but cannot pay back the whole amount that he borrowed in a short time. Taking an instalment loan will allow you to make a fixed monthly payment for three years, five years, and even longer depending on the amount that you borrowed and the terms of the loan. Instalment loans do not always involve a cash debt. Car loans and mortgage loans are also a type of instalment loan because you must repay them in fixed monthly instalments until you have paid the principal amount plus interest.

Here are the five top reasons to choose an instalment loan to finance your needs.

Flexible Repayment Period 

Unlike other loan products, borrowing on instalment has more flexibility than taking different types of credit. As the term implies, and instalment loan allows the borrower to pay back the amount that he borrowed in several instalments, usually monthly over the agreed number of years. A borrower may choose to repay the loan in 36 monthly instalments or three years, 60 months or five years, or 120 months or ten years.

When you take other short term loans, the lender expects you to settle your debt in three months to six months. For a payday loan, you can only borrow a small amount, which you must disburse lump sum on the next payday. If you need to borrow a significant amount, but you still can afford to pay, an instalment loan will be perfect for you. The principal plus that interest is spread over several months so that you will only pay a small amount on the due date until you have paid your debt in full. However, if you pay back your loan over a short time, the cost of your loan could be lower than paying if for many years.

Predictable Amount to Pay

An instalment loan comes with a fixed amount to pay on a specific date. For example, if you must pay £150 every 10th day of the month, you will pay the same every month until you have paid your debt. Making the timely payment is important to avoid penalties, which can increase the payment due because of late payment charges. If ever you have extra earnings, always allot £150 for your debt and never use the money for other purposes.

Fixed Interest Rate

Lending companies use either a variable interest or a fixed rate. A variable part may change depending on the current bank rates. For example, if the bank rate was 20% when you took the loan, it could go up or down, depending on the interest rate of the banks. If next month, the bank rate is 10%, your amount due could go down. But, if the interest rate is 30%, the amount payable could go up. With a fixed interest rate, you always know how much money to set aside for your debt.

Longer-Term

You can pay back an instalment loan for several years. The cost might be higher in the short term, but if you do not have a sure source of cash to pay more than you can afford, the long term repayment scheme could help. Because the lender spreads over several months the amount that you must pay, it would easy for you to manage.

Speedy Processing and Release of Funds

Borrowers who can submit the complete requirements early can get the funds early as well. Approval and release of the loan are for two days to two weeks, depending on the completeness of the documents that you submit to the lender.

Best Features of Doorstep Loans

Doorstep loan, also known as a door-to-door loan or home credit, is one of the many loan products that many lending companies in the United Kingdom offer. As the name implies, the transaction mostly happens in your home or on your doorstep. You apply online, and once the lender approves your loan application, the lender’s local agent will visit you for a face-to-face discussion of the terms and conditions as well as repayment terms. Here are some of the outstanding features of a doorstep loan.

Speedy Approval

Most people resort to borrowing because they need cash immediately. Many of them are looking for a small amount to borrow and secure repayment scheme. A doorstep loan is perfect for these people. One can apply online by submitting an application form. The lending company will send its agents to discuss the terms and conditions of the loan and the repayment scheme. These agents will also assess the applicant’s capacity to pay. Once the agents have made their report, the lender would decide to approve the loan or not. In most cases, most of the applicants can get a loan. Most doorstep lenders boast of high acceptance rate since they can accommodate applicants that other lending companies have rejected.

Home Delivery and Collection

One unique feature of a doorstep loan is the home delivery of the funds. Once the lender has approved the application, the company will send an agent to deliver the loan amount to the borrower. The agent will hand-in the money personally to the borrower. The agents will also come to collect the payments on the agreed due dates, specifically weekly.

Lenders use locals to serve as agents because they know most of the people and their addresses in the neighbourhood. With this collection system, borrowers do not need to have bank accounts to avail of doorstep loan. This condition is favourable to UK residents that do not have a bank account or live in far-flung areas. The collection agents keep a record of all payments so that the borrower would know the number of mortgages that he was able to make.

Accepts Bad Credit

Unlike other short term loans that require good credit rating, doorstep lenders welcome those with bad credit history. Bad credit refers to a person whose credit history shows unpaid debts and other financial obligations. Three major credit reference bureaus collect the data so that lending and finance companies could check if their credit score could qualify them for a loan.

There are three major credit reference agencies in the UK. These are the Experian, Equifax, and TransUnion. Nevertheless, this requirement cannot apply to doorstep borrowers because this group belongs to the lowest-income group in the community. Many of them do not have bank accounts or credit cards. Other lending companies are afraid to give them a loan because they might not be able to pay their debts. However, doorstep lenders offer small amounts with a manageable repayment scheme so that even those with bad credit can quickly pay back their loan.

People on Benefits Are Welcome  

You do not have to be regularly employed to qualify for a doorstep loan. Even people on government benefits are welcome to apply. However, if you think you cannot pay on a specific due date, you must let the agent know in advance so that both can decide on an alternative way of paying his loan.

No Hidden Fees       

With a doorstep loan, borrowers do not have to worry about hidden fees such as late payment charges that can be 2% to 3% of the equated monthly payments.

The Benefits of Tenant Loan

The housing preferences of UK residents have changed in the past years. Today, renting has become a trend and taking a loan using a home as security is not possible anymore. However, people that do not own the house where they live can apply for a tenant loan.

A tenant loan is a personal loan that does not require an asset to serve as collateral. Because you do not own a home, which you can use to secure a loan or home equity if you are a house owner, lending companies offer tenant loans. Qualifying for the loan is easy. Lenders would assess your capacity to pay based on other factors such as your income, credit history, and credit score. However, lenders prefer to consider your ability to pay your loan, regardless of your credit score.

To qualify for a tenant loan, you must be renting a property with your friends, renting a room in a family-owned house, or renting a property with people you do not know and who are not related to you. Aside from extending a loan to people who do not own property, here are other benefits of a tenant loan.

You Can Use Funds from the Loan for Any Purpose

Some lending companies would ask people applying for a loan the reason why they want to take a loan. Nevertheless, when you apply for a tenant loan, the application form does not ask you to provide the purpose of the loan or your reason for taking the loan. You are free to use the funds that you borrowed for whatever purpose you want. You can use it to have your dream vacation, buy gadgets, go shopping, or to pay bills, and cover your expenses. You do not need to be facing an emergency in a tight situation to apply for a tenant loan.

You Can Decide How and When to Pay

Payment for tenant loan is highly flexible. You can pay your loan between one to ten years, depending on what suits your circumstances best. If the monthly amortisation is affordable, you can shorten the repayment period. Nevertheless, if you have borrowed a significant amount, you can repay it for several years.

You Can Borrow Up to £25,000 

With a tenant loan, the minimum amount that you can borrow is £1,000 while the maximum is £25,000. Always consider the amount you need and your capacity to pay. Borrowing £25,000 would mean paying back the sum with interest for many years. If you borrow less than what you need, you might find it necessary to take a loan from other lenders. Having multiple debts is not suitable for your finances. Always think first before you decide on how much you will borrow.

Your Credit Score Is Not the Only Basis to Qualify for Tenant Loan

Many lenders are strict when it comes to the credit score of a loan applicant. People with bad credit would have a minimal chance of acceptance and approval. Although the tenant loan lenders might make a soft check on your credit history, they prefer to base their decision on your capacity to pay. They are more concerned with whether or not you have a regular job and a stable income. Once they think that you can afford to pay back your loan, they will approve your loan application.

Requires Few Documents

Lending companies that offer tenant loans require few documents. All you need to submit are your latest payslip, employment certificate from your employer, and proof that you are a tenant. Once you have submitted all, you are more likely to get a loan.

Personal Loan: The Best Borrowing Option in the UK

When it comes to borrowing options, a personal loan has become a popular choice for UK residents facing an emergency and in need of quick cash. Whether you have an urgent medical or utility bill to pay, a car that needs immediate repair, a leaking roof, a dream vacation, or for whatever purpose that you deem worth taking a loan. Lending companies offer many loan products, but many UK residents take a personal loan for the following reasons:

Personal Loans Can Be Used for Any Purposes

When you take a personal loan, you do not have to specify your purpose. You may use the funds for your wedding day, buying a new car, paying off old debts, refurbishing your home, or taking your dream vacation. There is no limit to what you can do with the money that you borrowed, which gives you a sense of freedom regarding the use of your loan.

Personal Loans Have Reasonable Rates

Each type of loan product has a specific rate. Most private loan lenders have reasonable rates, but if you spend time comparing several lenders, it is possible to find one with the lowest. Do not choose the first lending company that you see on the internet. Shop around, and you will discover that many of them offer a rate that is perfect for you. Aside from finding the most affordable rate, you will also come across the best deals in personal loan.

You Do Not Need an Excellent Credit Rating

Nowadays, many lending companies look beyond a borrower’s credit rating and focus on the person’s capacity to pay the loan rather than how bad or how good his credit history. However, check your credit score from time to time to correct erroneous entries.

Some companies do not take note of the payments that you made many years ago. Updating this entry will help improve your credit score. Credit reference bureaus in the UK such as Experian, Equifax, and TransUnion offers free viewing of your credit score on their website. Even if you can take a personal loan without a great credit score, it pays to have a good one. If you can, do something to improve your credit rating so that you do not have to worry about qualifying for a loan. 

 Personal Loans Do No Need Collateral

With a personal loan, you do not have to use your home or car as collateral. When you offer collateral, you will always be worrying about not being able to pay what you borrowed, resulting in the seizure of your home or car or any property that you used to secure the loan. Not having to worry about losing your property will reduce the stress that you feel over borrowing some money. You can focus on finding ways to pay back your loan without spending sleepless nights worrying about losing your home, your car, or other valuable things that you own.

Personal Loans Can Help Consolidate Your Debts

Paying several debts every month can be confusing and stressful. If you have just spent a monthly amortisation for your loan and you need to pay another two days after, getting the money to pay the next creditor and the next can sap your energy, make you feel cranky, and destroy relationships. To solve your problem, you can take a personal loan to pay off all your other debts. A once-a-month payment can give you time to find ways to earn enough to pay the next monthly fee.

Personal Loans Can Help Build Credit

When you take a personal loan and pay it up on time, your good paying habit will appear in your credit record. After paying off your debt, you will earn good points, and your credit rating will improve.

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