What to consider when checking your eligibility for a consolidation loan

Like with most loans, debt consolidation loans can be categorised into two different categories. These are secured and unsecured loans.

Secured debt consolidation loans are loans where the amount you borrow is secured against the value of an asset that you own, usually your home. This means that, by taking out the loan, you are acknowledging that if you miss the repayments, your home or asset may be at risk.

Unsecured debt consolidation loans, on the other hand, do not require an asset to be secured against.

When searching for a debt consolidation loan, don’t be tempted to borrow more than you need. Any amount you borrow will still need to be repaid. When checking your eligibility for a debt consolidation loan, it is worth keeping a few things in mind:

  • Although you’re reducing the number of debts to a single debt, you could be increasing the term of the loan.
  • You may benefit from lower monthly repayments – but the total amount repayable may be higher overall.
  • Be sure to compare the interest rate or APR (annual percentage rate) of your existing debts with the interest rates of the debt consolidation loan. This will help you ensure that you benefit from consolidating your debts.