Why You Shouldn’t View Debt Consolidation as a Last Resort

Households appear to be more reliant on credit to get them through the cost-of-living crisis. If you’re a homeowner with multiple loan commitments, a debt consolidation loan through a secured loan could help.

According to the Bank of England’s latest money and credit statistics, borrowing is increasing, and at a rapid pace. It showed that Brits net borrowed a further £1.8bn in June, double the £900m recorded the previous month.

As more and more people appear to be relying on credit amid the deepening cost-of-living crisis, borrowers may find themselves paying off multiple credit cards, store cards, personal loans, and overdrafts at once.

Managing multiple loan approvals at once can be challenging, not to mention the high monthly interest rates on some loans.

But if you’re a homeowner with good equity and a good credit score, you might consider a second debt mortgage — also known as a homeowner loan — which is financing secured against your property.

Home equity loan for debt consolidation

Homeowner loans are often taken out to reorganize personal finances, allowing borrowers to consolidate existing debt into easy-to-manage monthly payments.

While debt consolidation can be seen as a negative when it comes to managing outstanding balances — and often as a last resort — it can be a sound financial decision in the right circumstances.

If your total balance is less than £20,000 it may be worth considering an unsecured debt consolidation loan or a credit card that offers 0% on balance transfers rather than a secured loan as these won’t put your property at risk if you can. t meet your repayments.

However, if you owe more than £20,000, a secured loan is probably a suitable option for you. You can also borrow a lot more money than you can with a personal loan or credit card.

A consolidation loan not only offers customers a fixed payment each month over an agreed period of time, but can also reduce the interest they pay each month by bringing all of your existing debt to a lower interest rate. It also becomes easier to keep track of pending balances in one place.

Another welcome feature is that your credit score can increase. An initial application for a consolidation loan may affect your credit score, but over time, reducing your credit card balance can have a positive impact on your credit score, as a near credit limit could be considered “over-indebted” by some lenders.

Note, however, that you can extend the total payment period, which may result in more interest being paid overall over the period.

And because the consolidation loan is secured with your home, it can be repossessed if you default on a mortgage or other debt secured by it.

Home equity loan from Pepper Money

The average interest rate on secured loans is 6.1% by Pepper Money, while interest rates on unsecured loans vary depending on the loan amount. Borrowers under £3,000 can see interest rates from 5.9%, while loans over £5,000 get cheaper from 3.7%.

But for larger loans in the region of £25,000 to £35,000, the top interest rate is 5.9% per annum, borrowed between four and five years, according to MoneySavingExpert data.

With Pepper Money, you can borrow up to 100% of the value of your property – i.e. the equity after taking your existing mortgage into account – which is particularly advantageous in view of rising house prices.

The minimum property value is £75,000 and homeowners can borrow between £5,000 and £1 million. The offered term is between three and 30 years, subject to individual circumstances and credit checks.

With a Pepper Money secured debt consolidation loan, we take care of paying off your existing loan, credit card, and debit card balances when you’re done, so you don’t have to organize it yourself.

And don’t forget that if you want to clear your balance faster, you can overpay without being penalized.

The first step is to get a clear picture of your existing borrowing and financial obligations. Review your current credit card, loan and overdraft balances, interest rates, and monthly repayments. You can then calculate the total value of the consolidation loan you will need to cover this existing debt on your application.

But before proceeding with debt consolidation, it is important to consider the total interest paid as this may be more than your existing arrangement. Check out Pepper Money’s Homeowner Loan Calculator to find out what your repayments might look like each month and how much you might end up paying when you apply.

To apply for a home loan with Pepper Money visit our home loan page or call us on 0808 239 1496. Our fully qualified mortgage advisors will determine if a consolidation loan is the best option for you and can guide you through the application process.

Our home equity loans are also available through select brokers.

The Average Starting Rate highlighted is the median starting rate offered on offers for Near Prime, Prime and High LTV products for clients who buy through a broker and have arisen directly.

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