So You Cannot Take Out A Secured Loan Unless You Have A Mortgage On The Property

Category: Finance, Credit.

There are a lot of rules and regulations involved if you want to apply for a debt consolidation loan in the UK. There also needs to be equity left in your property.

There are some which are taken for granted like you must be a home- owner living in the UK and over the age of 18 although in some instance the minimum age is now 20 years old. So if your home is worth 180, 000 pounds and you have 180, 000 pounds mortgage on that property then you will not be able to get a debt consolidation loan on the property. These loans can also be called second charge loans as they are the second charge on your home the first charge being your mortgage. A debt consolidation loan is really another name for a secured loan the name coming from the fact that the loan is secured on the property. So you cannot take out a secured loan unless you have a mortgage on the property. Also you will be charged a very high rate because the lender does not have the security they have with a secured loan. Some people try to consolidate debt by taking out an unsecured loan however it can be difficult to obtain a loan that is not secured if you have a lot of outstanding debt.

Most people apply for a debt consolidation loan to pay off all there existing bills. There is one vital point to remember however about taking out a debt consolidation loan. It means that they will now only have one smaller bill which is fixed and direct debit from your bank so it puts you back in control of your finances. Your loan will pay off all your bills and some of them might be very high interest rates and you will be paying a lot less every month. This is seen as one of the main drawbacks with this type of loan in the UK, and some financial experts say that they are expensive in the long term. However the reason you are paying less is because the debt consolidation loan can be spread over twenty five years so although you re monthly payments are drastically reduced now, over the long term you could be paying more. However for some people they have offered a lifeline and gave them control of their finances again.

However they are now left with a lot more money every month and they start to overspend again, and because they have already one secured loan they do not have enough equity in their property to take out another secured loan so they cannot consolidate their finances. The problems have occurred when people take out a loan to consolidate their debt and now have one nice small payment. If homeowners in the UK that have the opportunity to consolidate their debt use it properly and not overspend whenever they receive their loan it can be very advantageous. If you consolidate your debt using a secured loan it is also possible to take out insurance on the loan so your monthly repayments will be paid if you are made redundant or if you are sick. The control they have over their finances gives them great opportunity to start saving and it s also possible to pay off their loans early however there might be a redemption penalty. When you apply for a secured loan you can ask to have this insurance in your quote.

You are at no point under any obligation to take out insurance with your loan and you should always make sure that you are quotes with and without loan insurance. However it is advisable to shop around as these prices can vary a lot. In summary you can take out a secured loan for the purpose of debt consolidation and although they can be more expensive in the long run if they are used properly they can get you back in control of your finances. If you start running up more debts after you have taken out your loan then you might not have enough equity in your property to consolidate any further debts.