We have heard a lot about refinancing debt since the start of the financial crisis. Between financial advisors explaining how it works to banks offering debt consolidation loans, there is plenty of information to be had about attractive financing options. We want to help clarify some of that oft-confusing information, which is why we have put together this ultimate guide to debt refinancing. We hope you find it helpful.
Definition of Refinancing
It is important to begin by defining what the financial industry means when talking about refinancing. A refinancing package is a tool that allows consumers to obtain a loan to pay off existing debt. That is key. If existing debt is not paid off, you are not really refinancing. You are just adding additional debt to what you already owe.
Secured Loan Expert specialises in secured loans made against the equity in your home. You can refinance bad credit by obtaining one of these loans at a value up to the total amount of your equity. The money you borrow can then be used to pay off the outstanding debts you are currently struggling with. Some people use the money to pay off credit cards; others use it to settle personal loans and other lines of credit.
How It Works
Refinancing debt with a secured loan is a pretty straightforward and easy to understand process. You apply for a loan with a bank or building society based on your total equity and the lender's loan-to-value (LTV) ratio. Upon approval, you receive funds that you can use for any purpose. For debt refinancing purposes, you would direct those funds to the debts you want to pay off.
Financial experts recommend you use a secured loan to pay off high interest debt such as credit cards and personal loans. The reasoning here is simple. Secured loans typically have lower interest rates, so you will pay less per month. Using the funds to erase debt with higher interest means you will save money over the long term.
What You Need to Know
There are couple of important things you need to know before you consider a secured loan for debt refinancing. First is the comparison between your equity and the LTV ratio. Simply put, you may not necessarily be able to borrow 100% of your home's equity. If you have £50,000 in equity and you are borrowing from a lender offering a 75% LTV ratio, you would only be eligible to borrow £37,500 – or 75% of your equity.
Second, your credit history and score will play into how much you can borrow, how much interest you will pay, and some of the upfront costs built into borrowing. If bad credit is what has put you in a position of having to refinance debt, it will have an impact on your borrowing. That's not to say that you cannot get a loan, it's just that you might pay a little more for it.
Lastly, lenders advertise what is known as the representative APR. This number is a combination of the loan interest and all of the upfront costs of borrowing. However, understand that banks need only approve 51% of their applications at the representative APR in order to advertise it. The remaining 49% could be approved at a higher rate. In the end, advertised numbers are just a basic guide. You will not know exactly what your terms and conditions are until you apply.
Along those same lines, carefully consider the loan terms you accept. A longer loan term means lower monthly payments but more interest paid over the life of the loan. A shorter loan term means less interest paid but higher monthly payments. Just be sure to match the terms with what your budget allows.
Refinancing debt through a secured loan is a great way to use the value of your home to pay off that high interest debt consuming your monthly budget. Secured loans are affordable and easy to get because you are using your property as collateral. Consider looking into a secured loan if your current debt load is pushing your finances to the edge.
Our expert team are here to help and offer their professional advice completely free. Just give the team a call and they will answer any questions you have regarding refinancing debt. All calls are in total confidence as we don’t work for the lender we work for you.
Our experts have access to a whole of market panel of UK high street and specialist lenders and within a few minutes can find the best offers available to suit your individual circumstances. They will help you compare these deals side by side and when you have chosen the best deal for you will create and submit a fully optimised application on your behalf. Our experts have thorough knowledge of all lender criteria and underwriting rules and will liaise with the lenders underwriting team to ensure your case has the best possible chance of approval.
We source the best rates from the whole market
- Borrow up to £2,500,000 Depending on the Equity in Your House.
- Adjustable Repayment Terms from 3 to 30 years.
- Secured Loans Can Be Used for Almost any Purpose.
- Low Interest Rates.
- Rapid Approval - Low Arrangement Fees.
- Options for Homeowners with Bad Credit History.