It stands to reason, of course, that if you can repay your debts at a cheaper rate of interest you will save yourself money. Furthermore, if you wrap up all your outstanding debts into a single larger one, you will not run the risk of overlooking the repayment of one of the debts. Overlooking or simply failing to make a repayment on one of them could lead to more interest accruing, an increase in the amount that needs to be repaid, and mounting financial problems in the form of adverse credit reports or legal action to recover the whole of the debt. Depending on your circumstances, consolidation loans, therefore, could not only save you money, but a lot of financial heartache, too.



The principle behind a consolidation loan is quite straight forward - the borrower looks to pay off a number of outstanding debts by consolidating them all into one single loan at the lowest available rate of interest.

Finding the lowest available rate of interest is where the services of a financial adviser aggregator such as Confused, with access to the literally hundreds of sources of such finance, can prove extremely useful.

The most common way of consolidating several unsecured, high-interest debts – whether they are personal loans or outstanding credit or store card balances – is through a secured consolidation loan. By offering the lender a security against any risk of your defaulting on repayments, you can reasonably expect the lender to offer a more attractive rate of interest than if the loan were unsecured.

A secured loan is generally also repayable over a longer period of time. This can be a distinct advantage if the borrower is struggling to meet the high total monthly repayments on a number of shorter-term loans, since the extend repayment period will also significantly reduce the size of the monthly payments. This move alone might give the borrower just what he or she needs to bring previously spiralling debt back under control. Reduced monthly repayments, even paid over a longer period of time, can offer a real solution to managing personal debt.

Almost every financial product, however, needs to come with a health warning. The relevant cautionary notes with a consolidation loan are several. If you have taken the advantages provided by a secured loan and taken the usual course of offering your home as security (in which case, your loan is often therefore known as a homeowner loan) remember that your home is at risk if you should default on the repayments.

This leads on to the second cautionary note. If you have taken a consolidation loan in order to reduce your monthly repayments, it shows that you are serious about tackling debts that have arisen in the past. It is almost certain to prove counter-productive, therefore, to treat the reduced monthly payments on a consolidation loan to arrange still further borrowing.

The market for consolidation loans is extremely competitive. While this is good news for the consumer in that there are some attractively-priced deals available, it is also true that the borrower should appreciate exactly what rate of interest is being charged on the loan, for how long and for what total cost in interest over the whole of the borrowing term.