If you’re currently paying interest on loans, credit cards or an overdraft, you might be able to save money by switching to a loan with a lower APR. This could reduce your monthly repayments, making them more manageable. To help you decide whether switching to a cheaper loan is right for you, here’s what you need to know before you go ahead.
If you are thinking of consolidating existing borrowing you should be aware that you may be extending the term of the debt and increasing the total amount you repay.
How do I switch to a cheaper loan?
First, you need to find out if you’re eligible. You can do this quickly and easily by using a soft search loan eligibility checker. When checking your eligibility for a debt consolidation loan, you’ll need to know how much to borrow to pay off your existing debts. This could be for just one loan or credit card, or multiple.
If you are eligible for a debt consolidation loan, you’ll see one or more options in your search results. You can then check your options to see if the APR is lower than what you’re currently paying. If it is, the next step is to weigh up whether it’ll better for you to switch.
How could I be eligible for a better rate than before?
When you check your eligibility for a loan, the APR you’re offered is based on your credit history and personal circumstances. If you’ve been consistently making your loan repayments for a while now, this might have improved your credit score. This means that you could be offered a better rate than when you initially took out your loan.
If you’re thinking of paying off a credit card or overdraft, you might simply find the rate you’re offered with a debt consolidation loan is lower than what you’re currently paying. What’s more, if you make your monthly repayments until then end of your term, you will have actively paid off your what you owe.
What are the benefits of switching?
If you’re eligible for a cheaper loan, there are some clear potential benefits of paying off your other debts.
- You can save money – if you switch to a loan with a lower APR, you could reduce your monthly repayments making them more manageable.
- You could have less repayment dates to remember – if you pay off more than one loan, credit card or overdraft with your debt consolidation loan, you can turn multiple repayments into just one.
- You could stop debt increasing – if you have mounting credit card and overdraft debts, you can clear them with a debt consolidation loan and have one fixed monthly repayment to manage.
What are the potential drawbacks?
As with any financial decision, there are a couple of things to consider before you proceed.
- You could be extending the term of your loan – if you switch to a different loan, it might come with a longer loan term. This means that you could end up paying back more interest overall.
- Early repayment fees – before you pay off a loan early, double check your lender’s terms and conditions to see if you’ll be charged any early repayment fees. If there are, you’ll need to work out if you’ll save money by switching.
What are my other options?
If you’re struggling to make your credit card repayments, you could also consider a balance transfer credit card. This allows you to transfer the balance from your current credit card (usually for a fee), to a credit card that has 0% interest introductory offer – for example 0% APR for four months. This means that you won’t be charged interest on the balance of the credit card for the first four months of you owning the card.
This could give you the breathing space you need to pay off what you owe during the four months without your debt increasing. However, it’s important to note that you will be charged the credit card’s interest rate on the entire balance once the offer ends.
If you think you could save money by switching to a debt consolidation loan, you can check if you’re eligible now without harming your credit score.
You can also learn more about when to switch in our blog, when to switch between finance products.
