Just because someone will lend you money, that doesn't necessarily mean you can afford to borrow it!
HOW MUCH IS TOO MUCH?
Before taking on any new borrowing, think carefully about whether you will be able to afford the new repayments on top of your existing ones and think about what would happen if your circumstances changed.
To help you do this, draw up a budget taking into account how your income and spending are likely to change over the lifetime of the loan.
Also look at how much you will pay back in total (multiply the monthly payment by the number of payments). You might be surprised!
Re-run our Debt Test as if you had already taken out the loan. Do the results suggest you'll run into problems?
Calculate the effect of a change in interest rates on your mortgage.
Think carefully before you borrow more to try to get out of a problem.
A new loan may appear to help for a time, but will make matters worse if you run into problems repaying that loan too.
Check out budget and loan calculators to understand the real impact of your borrowing.
And get advice to help you sort out the root of the financial problem. (See debt advice links below)
Consolidation loans are a single loan taken out to replace your other debts, but are they the best option?
Taking out a consolidation loan when you are already in severe debt might not be the best option for you.
The debt advice agencies below will be able to advise you.
- Cost: Is the interest rate very high? Will the new loan really save you money?
- Security: Is the loan secured against your home? If so, you could risk losing your home if you fail to keep up the payments on the consolidation loan
- Other existing debts: Make sure the consolidated loan covers all your existing debts (except those which have a lower APR than the consolidation loan). Otherwise, you could find yourself having to pay back loans you had forgotten about at a time when you are already stretched paying back the consolidation loan.
- New debts: Once you've consolidated your loan, don't build up new debts elsewhere. Cut up your credit cards so that you can't use them.
National Debtline - for free confidential and independent advice on how to deal with debt problems
Payplan - debt management and free confidential debt advice on resolving debt problems. No upfront fees for Individual Voluntary Arrangements.
Consumer Credit Counselling Service - a charity dedicated to providing free and confidential counselling and money management assistance and advice on dealing with your creditors.
Citizens Advice - an online CAB service that provides independent advice on your rights.
Citizens Advice Scotland - the website of the Scottish CAB service
Money Scotland - advice on managing money and debt in Scotland
Advice NI - for advice and agencies in Northern Ireland.
SECURED AND UNSECURED LOANS
What is the difference between a secured and an unsecured loan?
A secured loan means that you borrow a sum of money and put up something of value as security - usually your home.
If you do not keep up the payments, the lender can sell the item used as security, even if that means leaving you homeless.
With an unsecured debt, if you don't keep up the payments, the lender can take action in the courts to get the money back.
You will usually be ordered to pay off the loan in regular instalments set at an amount the court decides you can afford.
The lender can use a range of other measures if you do not make the payments in line with the court order.
A secured loan is usually cheaper than an unsecured loan, because lenders run very little risk of not getting their money back.
An unsecured loan will generally cost you more, but there's less immediate danger of losing your home if you can't keep up the payments.