Scottish Debt Consolidation

Secured loans fall into three main categories:

• Second charge mortgages

• New larger mortgages

• Further advances on an existing mortgage

Additionally, homeowners aged 55 or older may be able to access a lifetime mortgage. This type of equity release mortgage has the potential to reduce your debt repayments to zero, but interest will continue to roll-up on the borrowed amount until you sell the property, go into care, or pass away.

In each case multiple unsecured debts are consolidated into a single loan that’s secured against your home.

Secured consolidation loans could potentially:

• Reduce your total monthly debt repayments

• Reduce the overall rate of interest that you’re paying

Large loans are risky for lenders, but when they have security against your home that credit risk diminishes significantly. This makes it easier for them to offer a large loan at a fair rate of interest, increasing your chances of affordably consolidating your debts.

Provided you keep up with the repayments, a secured loan will not significantly damage your credit rating. In some circumstances your credit rating might improve.

There are a number of potential costs including:

• Broker fee

• Arrangement fee

• Valuation fee

Consider these costs when considering the benefits of secured debt consolidation. You might have an option to add the costs to your new loan, but doing so will result in extra interest being added for a long period of time.

Secured debt consolidation can create serious risks:

• Loss of your home if you default

• Paying more interest in the long-term

• Build-up of new unsecured debt

These risks are often underplayed by lenders and loan brokers. The risk-level is in fact so high that the UK government’s Money Advice Service recommends getting debt advice before securing unsecured debt against your home.

These loans fall into two main categories:

• Low-interest from banks

• Higher-interest from sub-prime lenders

In each case multiple unsecured debts are consolidated into a single new unsecured loan.

Unsecured consolidation loans could potentially:

• Reduce your total monthly debt repayments

• Reduce the overall rate of interest that you’re paying

Large loans are risky for lenders without holding security against property. Interest rates tend to be higher than secured lending unless you have an excellent credit rating and its clear you can afford the new repayment.

If you have an excellent credit rating a high street bank may offer you an unsecured loan at a competitive rate of interest. This could still cost you more in the long-term if you repay a low rate of interest for a long period of time.

If your credit rating isn’t perfect other lenders may still be prepared to lend to you. Well-known sub-prime lenders include Everyday Loans, Progressive Money, 118 118 Money, and Likely Loans. Their interest rates are likely to be much higher than those offered by high street banks.

A sub-prime consolidation loan might reduce your monthly debt repayment now, but it’s likely to increase your total debt repayment over the term of the loan.

Provided you keep up with the repayments an unsecured consolidation loan will not significantly damage your credit rating. In some circumstances your credit rating might improve.

Unsecured debt consolidation can create serious risks:

• Paying more interest in the long-term

• Build-up of new unsecured debt

• Legal debt recovery processes if you default

Homeowners should be aware that, in the event of default, lenders have legal options to secure the debt against your home or to attempt to force a sale.

This debt management method enables you to transfer one or more credit card balances (and potentially other debts) to a new credit card. The new card may provide benefits such as a reduced or zero rate of interest for a period of time.

Balance transfers could potentially:

• Provide an opportunity to clear your debt sooner

• Reduce your total monthly debt repayments

• Reduce the overall rate of interest that you’re paying

Cheap credit card balance transfers are targeted at borrowers with good credit ratings.

A fee may be payable to transfer a balance to a new credit card. This will increase the amount you owe now and this additional borrowing could become subject to interest in the future.

Provided you keep up with the repayments, a credit card balance transfer will not significantly damage your credit rating. In some circumstances your credit rating might improve.

The risks of credit card balance transfers include:

• Build-up of new unsecured debt

• Expensive use for new purchases

• Expensive use for cash withdrawals

• New transfer unavailable when current deal ends

Guarantor loans may be provided on an unsecured or secured basis. In this section we’re covering unsecured guarantor loans. The benefits, costs, and risks of secured lending are explained above.

A guarantor loan might potentially:

• Reduce your total monthly debt repayments

• Reduce the overall rate of interest that you’re paying

Large loans are risky for lenders, but the addition of a guarantor significantly reduces their lending risk. You’re less likely to default to protect your guarantor. The guarantor must pay if you don’t.

Guarantor loans are typically provided to borrowers with imperfect credit records which is reflected in generally high interest rates. Well-known providers include Amigo, George Banco, and UK Credit. These loans are controversial and complaint rates are growing.

Guarantor loans might reduce your monthly debt repayment now, but it’s likely to increase your total debt repayment over an extended repayment term.

Provided you keep up with the repayments, a guarantor loan will not significantly damage your credit rating. In some circumstances your credit rating might improve.

Guarantor debt consolidation loans create several serious risks:

• Damage to personal relationships if you default

• Paying more interest in the long-term

• Build-up of new unsecured debt

• Legal debt recovery processes if you default

Borrowers and guarantors often fail to understand the significant likelihood that the guarantor will need to step in and make payments at some stage during the loan term. Guarantors are generally relatives or friends so defaults can cause emotionally painful problems as well as financial issues.

If you’re thinking about debt consolidation Trust-Deed.co.uk can assist you.

Our advisory process includes a financial review of your income, household bills, and other necessary spending. The outcome of this review will help to you check whether:

• Debt consolidation loans are affordable

• Further borrowing exposes you to excess risk

• Debt management solutions could save you money

• Debt solutions could clear your debt sooner

• Insolvency debt write-off has become necessary

We’re FCA authorised debt advisers but we are not a lender or a loan broker.

For a confidential expert debt advice please get in touch.