How long can a debt consolidation loan last?

7 May 2010

If you have more than one debt and you`re looking to rearrange your finances, a debt consolidation loan could help. By paying off your existing debts with your new loan, you`ll be left with just one monthly payment to deal with - and you can pay it back at a rate that suits you, within limits. Just be aware that repaying a debt more slowly is likely to increase the overall cost, as it`ll have longer to accrue interest.

How long your repayment period can be can depend on the type of debt consolidation loan you take out.

Unsecured debt consolidation loan

An unsecured debt consolidation loan doesn`t place any of your assets (e.g. your home) as security against the amount you`ve borrowed. This means there`s less risk to you if you struggle with your repayments, but on the other hand you`ll probably be more limited in terms of how much you can borrow, as well the repayment period.

Most lenders will only offer unsecured loans with a repayment period of up to seven years - although there are exceptions.

Similarly, lenders may only offer up to £25,000 on an unsecured loan, and interest rates tend to be higher than on secured loans.

Secured debt consolidation loan

A secured debt consolidation loan will place one of your assets (usually your home) as security against the loan. This means that if you fail to keep up with your payments, your home (or other assets) may be sold to cover your debt.

On the other hand, the terms on a secured loan can be more attractive than on an unsecured loan. Repayment periods can stretch up to 25 years or even longer; you may be able to borrow more than you could with an unsecured loan; and the interest rates may be lower (although this isn`t always the case).

If you are financially very comfortable and you are clear on what you`d do if you ran into difficulties, then a secured debt consolidation loan might be the right option. But don`t forget that it is a big commitment - your home may be at risk if you fall behind on your payments, and this is a risk that should never be taken lightly.

For more information on debt consolidation loans, click here or call us today on 0800 074 8639.

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