Is consolidating debt with a secured loan a good option?
This will depend on the individual’s personal circumstances. Usually, a secured loan is an option available to those looking to borrow a significant amount of money, typically £20,000 or more. It can be approved within a few weeks, making it a relatively quick way to consolidate debts. However, borrowers should be aware that a secured loan has greater risks than unsecured loans, largely because it requires the borrower to put up an asset, usually their home, as security. This means if they fall behind on repayments or are unable to repay the loan, they could end up losing their home.
The main benefit of using a secured loan to consolidate debt is that it can reduce the monthly repayments, but it won’t be for everyone. Those struggling with debt, or who want additional advice, should consider speaking to Citizen’s Advice or a free debt charity.
How much could you save?
This will depend on many factors, such as the amount of debt to consolidate, the amount being borrowed and the interest charged on the loan, which will depend on factors such as the borrower’s credit score.
Here’s an example to give an idea of how much can be saved consolidating debt through a secured loan. Let’s say a borrower took out a secured loan of £55,000. This would be used to consolidate £53,901.68 worth of debts held on a credit card and five loans, with the remainder of the money being used to make home improvements.
If the debts remained as they were, they would incur interest costs of £22,352.42 and monthly repayments of £1,945.80. In contrast, the secured loan of £55,000 had a repayment term of 10 years at a rate of 3.40% (5.43% APRC), which reduced the total interest cost to £15,973 and cut the monthly repayments from £1,945.80 to £591.44. In this case, the potential savings are clear, but there are other options, such as consolidating to a personal loan or remortgaging. It’s important to find the option that’s right for you.
There’s a lot more to this story online, or find out if secured loans could be an option by speaking to our broker partner.