Secured debt consolidation loans could be the answer to your debts. You can consolidate existing debts with a secured debt consolidation loan, allowing you to reduce your repayments each month.
We discuss secured debt consolidation loans here, and where the best three secured debt consolidation loans can be found.
What Is a Secured Loan?
A secured loan is a type of loan that has an asset listed as collateral against the credit you receive.
For example, some loan providers will lend you money if you grant them ownership of an asset if you fail to repay, such as a watch or another valuable item. The asset helps the loan provider lend you the money because even if you don’t repay, they can legally take possession of the asset listed as collateral.
They won’t take possession if you keep to the repayments.
But loans where you list these types of assets as collateral are quite rare. The most common type of secured loan is a mortgage.
With a mortgage, you borrow money from a mortgage lender to pay for a home, but the property is the asset which is secured. If you don’t keep up with repayments, the lender can seize the property back.
What Is a Secured Debt Consolidation Loan?
A secured debt consolidation loan is a loan just like we described above. However, the money you lend is used to pay off multiple other debts, known as debt consolidation.
Debt consolidation is a strategy used to consolidate the number of debts you owe by taking out a new loan or credit card. The new loan or new credit card must have a lower rate of interest than the interest on all debts you pay off with it. This will make repayments cheaper and debt consolidation worth it.
Secured debt consolidation loans are rare, except for remortgaging for debt consolidation. You don’t usually hear of people taking out a secured loan with an asset like a computer or watch to consolidate debt, but you frequently hear about remortgaging for debt consolidation.
How Does Remortgaging for Debt Consolidation Work?
Remortgaging is when you switch your current mortgage deal for a better interest rate. The deal you received when you bought your property may have been favourable at the time, but mortgages can get better (or sometimes worse) over the years.
Just like you switch your internet provider for a cheaper deal, you can switch your mortgage for a better deal, known as remortgaging.
When you remortgage you can free up a lump sum of cash and this can be used to pay off existing debts. Thus, you consolidate your debts through a new mortgage with a lower interest rate than your debts.
Remortgaging for debt consolidation can reduce monthly payments with lower interest, but you might pay back more in total because the mortgage lasts a lot longer.
Who Offers Secured Debt Consolidation Loans?
You can usually find secured debt consolidation loans through pawn shops and similar businesses. These places will offer you a secured loan against something you own that is valuable, and you can use their loan to pay off debts.
Be careful! If you miss repayments your item will now be owned by the pawnshop. They usually undervalue your items to make a profit as well.
The best secured debt consolidation loans come from remortgaging. There are lots of UK remortgaging providers, such as the big names like Lloyds, Santander, Barclays and so on.
Who Are the Best Secured Debt Consolidation Loan Providers?
At the time of researching and writing, the three options below represent the best secured debt consolidation loans we could find (remortgaging). Always do your research and see what is new on the market. You might find something better that has just been released.
The lowest rate we could find was with Lloyds Bank. They are offering a remortgaging fixed rate as low as 1.09%, rising to 3.3%. Be aware that they also come with product fees – this is normal – and the fee for this one is set at £1,499.
Santander offers a comparable deal with a low initial rate of 1.14%, increasing to 3.1%. However, the product fee is cheaper than Lloyds above at just £1,249.
There is a second option at Lloyds right now. This mortgage deal offers a higher fixed interest rate of .17% until 2023. After that, you will pay 3.3% or more. But the product fee is around one-third cheaper than their other mortgage deal at £999.
These rates are subject to change and additional fees could be applied.
Other Secured Debt Consolidation Loans Worth Considering
These current deals all come from the mainstream banks, you should check the other big names, but don’t be afraid to look for lesser-known lenders. Some of the better remortgaging deals are not on the high street.
Before You Apply for a Secured Debt Consolidation Loan
Before you apply to remortgage your home for debt consolidation, you need to take the same steps you took when first applying for a mortgage. This includes checking your credit file for mistakes, and if you find them, get them removed.
You might also want to speak with debt charities and mortgage specialists to make sure remortgaging for debt consolidation is your best option.
Other debt solutions exist that could be more advantageous for you.
More Help Finding a Secured Debt Consolidation Loan
Another fantastic tool to help you locate the best secured loans for debt consolidation is at USwitch. Just like you might use this site or their agents to find better utility deals, they have an online tool to find the best remortgaging deals.
Read More Debt Consolidation Advice at Money Nerd!
If you have further questions about debt consolidation or secured debt consolidation loans, check out our recent posts on Money Nerd.
We frequently dive into this subject – and many other topics to help you overcome your debts.