Debt consolidation loan rates

A debt consolidation loan is one way of simplifying your finances and reducing your outgoings each month. However, because of the way debt consolidation works, you may sometimes end up paying more in the long term.

The interest rate you are offered on your debt consolidation loan will affect the overall cost of repaying your debt - so here, we take a look at what can affect the interest rate you`re offered.

Quick guide to debt consolidation

A debt consolidation loan is a new loan that pays off your existing debts, effectively combining multiple debts into one affordable monthly payment.

Many people who take out a debt consolidation loan are also looking to reduce their monthly outgoings by spreading out their repayments. This can make your debts much more manageable on a month-to-month basis, but be aware that because you will also be paying interest for longer, you`ll end up paying more than if you had chosen a shorter repayment term.

However, you could still save money overall if you are consolidating high-interest debts such as credit cards.

What kind of interest rate can I expect on my loan?

This will depend on a number of factors, including your credit history and your current circumstances.

On the one hand, the fact that you are looking for a debt consolidation loan does not mean you will have a bad credit history. Providing you have stayed on top of your debt repayments and other financial commitments in the past, you should have a strong credit history - you have the experience of borrowing money, and the proof that you can manage it well. In this case, you could well be offered a relatively low interest rate on your debt consolidation loan.

On the other hand, if you have struggled in the past - if you`ve missed some of your debt repayments, perhaps - then your lender may offer you a loan with a higher interest rate. This can make a big difference to the amount you pay each month and/or in total.

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Related resources:

• Debt Consolidation Calculator

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