Beware Of 'Debt Consolidation' Firms & How To Get a Cheaper 'Secured Loan'
Ever watched daytime TV? If so you must have seen the excessive amounts of 'Debt Consolidation' companies advertising. Simply put, many of these companies prey on the financially unsophisticated by attempting to stitch them up triple-time.
- The interest rates they charge are often excessive and in some cases at outrageous levels
- The loans are usually for long periods (10-20 years+) so making them far more expensive although the monthly repayment will be cheaper that the customer is already paying
- The loans are usually extremely inflexible and will carry horrendous early payback charges. This means that it will be uneconomical to repay it early even if you financial circumstances change
They’ll Scare You In To Doing Business With Them
One thing to always watch out for with Debt Consolidation firms is they love to play the scaremonger, giving clients the impression that there’s nowhere else they can turn to.
For example, if you have CCJs and/or Defaults against your name they’ll often say that the high street banks or other similar financial institutions won’t deal with you. But this is often not the case because any loan will always be secured against your property. So even if you have a horrendous credit history the lending company won’t worry too much because if you do default again they can simply take possession of the property.
Therefore a secured loan for any financial institution is one of the safest loans it can make.
How To Not Deal With Debt Consolidation Companies
Dealing with a Debt Consolidation company should always ever be your last resort. So before you do try out a few of the different options listed below.
Firstly, whenever you borrow money, borrow as little as you need and always try and use an unsecured loan. Unsecured means that if anything bad were to happen the loan would not be secured on your property. This is a critical point to remember.
Secondly, why exactly do you need the loan? If it's for a holiday, a nice car or other such non-essential items then always try and think again or talk things over with a trusted friend or relative. If you still feel you need the loan then follow these four guidelines -
- Get the smallest loan possible
- With the shortest repayment period
- At the lowest APR (interest rate)
- With the most flexibility, ie if you take out a 5 year loan and find that you can replay it within 3 years then the loan company does not penalise you for doing so – this is a critical point
Think About Remortgaging With a High Street Bank
As we said before, just because you may have a bad credit rating don’t think the High Street banks won’t do business with you. In fact, many of these firms have recently set up specialised departments to deal with people with less than perfect credit history’s.
Remortgaging is also an option open to many people. Say you have a property worth £150,000 with a £75,000 mortgage. Consider remortgaging by increasing the mortgage amount to £100,000 so releasing £25,000 worth of cash. You may also find that with remortgaging you can drastically reduce your interest rate as well. For example, the Standard Variable Rate (SVR) that most lenders are charging at present is around 6.5%. But there are plenty of deals available on the high street which offer around 4.5% fixed for a few years.
As ever when remortgaging make sure you shop around (you don't have to remortgage with your present bank) and check all relevant fees and other charges that might be applicable. Never just go on the interest rate of a mortgage because most banks have a sneaky habit of slipping in all sorts of fees via the back door.
What If All Else Fails
If after you’ve been to see some of the banks and building societies they’ve all refused you then a secured loan is most probably your only option.
But concentrate on the getting the smallest loan with the earliest payback period (say under 10 years, under 5 is better) with the most flexibility. So if you get an 8 year loan and can repay it within 4 years the company will not excessively penalise you for doing so.
Don’t Forget The Debt Help Organisations
If you are struggling with debts then before you do take out a secured loan of some sort it’s always excellent advice to talk your problems over with the superb non-profit organisation the National Debt Helpline. Tell them what you're thinking of doing and if there are any alternatives. Tel - 0808 808 4000 - The telephone gets very busy so hang on and don't give up.
Summary
Using a Debt Consolidation companies must always be your last option.
We’d estimate that well over 80% of people who deal with these kinds of companies could get far better, cheaper and above all more flexible deals if they used their heads and first shopped around with the High Street banks and Building Societies.
Hopefully this article has given you some basic knowledge to help your financial situation over the coming years.
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