What Advantage does a Debt Consolidation Home Loan Offer?

Michelle Tuvey Michelle Tuvey | Loan Underwriter

A debt consolidation home loan can be a very useful tool for eliminating debt and managing your monthly budget. The key to doing so effectively is finding a loan that is right for your circumstances. Needless to say, there are lots of products out there, some good and some bad. Your task is to learn as much as you can about the debt consolidation process so you can make a wise decision.

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The first thing to understand is what debt consolidation is all about. When you borrow money, be it a personal loan or a car loan for example, you are spending additional money for that privilege. Banks and building societies make their money by charging you interest; they also charge certain fees to cover their costs of administration. When you repay a loan, you are repaying three things:

  1. principal (the amount you borrowed)
  2. interest (the lender's profit)
  3. fees and charges (the lender's administrative costs).

All three things together make up the total cost of borrowing. The idea behind debt consolidation is to lower that cost as much as possible. We recommend consumers do this by taking advantage of debt consolidation home equity loans.

Consolidating with Equity

Using your home for debt consolidation involves taking advantage of equity. If you are unfamiliar with the principle of equity, it is nothing more than the difference between how much you still owe on your mortgage and the current retail value of your property. Lenders will let you borrow money based on your total equity and their loan-to-value (LTV) ratio.

The benefit of using equity to consolidate your debts is that it allows you to use your property as a financing tool. By offering your home as collateral for a secured loan, you can borrow tens of thousands of pounds for up to 25 years. Moreover, because the loans are secured by your property, interest rates tend to be substantially lower than what you get from personal loans and credit cards. This is how you save money.

Compare Loan Products

The next thing to understand about secured loans for debt consolidation is the concept of comparing. Just as you might compare car insurance or energy providers, you should also be comparing secured loan products from different lenders. Comparing allows you to see benchmark numbers indicating which lenders are most attractive.

Secured Loan Expert makes it easy to compare by showing you multiple loan products side-by-side from our whole of market panel of top UK lenders. Keep in mind that the advertised numbers you find are only estimates based on normal circumstances. There is no way to know what the final details of the deal you will be offered until you actually apply.

The two most important numbers when you are comparing are representative APR and LTV ratio. The representative APR is a combination of the standard APR and all of the known charges and fees associated with borrowing. The LTV ratio is the percentage of your equity that the lender is willing to loan you. These two benchmarks will help you create a short list of possible lenders.

With a short list in hand, the next step is to call our friendly team of secured loan experts who will provide their expert advice and guidance to ensure you pick the best loan deal to suit your individual circumstances before you proceed with any application. Our advice is always free and without obligation.

You don't have to continue struggling under the weight of high interest debt if you own a home with equity. You can take out a debt consolidation home loan that will enable you to combine all of those high interest debts into a single, affordable secured loan. This is a great way to improve your financial circumstances and take some of the stress off your budget.

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