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Learn MoreA debt consolidation personal loan is basically a personal loan which you use to pay off your outstanding debts. Think of all those high interest credit card debts, the household appliances that started out as interest free (and are now far from it), the car loans, and any other small sums you’ve borrowed over the years.
The repayments climb, the interest rates get higher and before you know it, you’re in a debt trap.
A debt consolidation personal loan can help you centralise your outstanding debts by rolling them all into one.
Putting all these borrowings on a single loan means you’ll have just one regular repayment instead of many. So, you’ll know where your finances stand, you could be less likely to miss a payment by mistake, and it could be easier for you to budget. It could also reduce the amount of fees you have to pay by reducing the amount of products you’re responsible for repaying.
If you find a good interest rate, it can also cut your monthly payments, and free up some money for everyday living.
Like any personal loan, a loan for debt consolidation is generally for a comparatively small amount of money, and is typically paid back over a set time, normally up to about seven years.
Your own personal circumstances will play a big part in how much you can borrow. Lenders will consider several things, like:
Personal loans are smaller than some other loans, but can still range between $2,001 and $100,000.
Consolidating several debts can offer you many benefits, including the following:
There are a few possible ways these loans might not serve you well.
When you take out a debt consolidation loan, paying attention to the details of the loan can help you avoid unexpected charges. After all, there’s little point in taking out a debt consolidation loan if it’s not going to save you some money.
The Australian Government Moneysmart website has a lot of helpful advice, but some of the main things you should be looking out for are listed below:
The comparison rate shows the total cost of the loan and includes the interest rate as well as most of the fees. This makes it easier for you to compare the costs of different loans.
This is the percentage of the loan amount that you will pay in interest. It does not include additional fees etc.
Some, but not all lenders charge an application fee when you take out a personal loan, so make sure that any application fee isn’t going to outweigh the benefit of a lower interest rate.
Some lenders will charge fees on top of the interest rate. You may have to pay a monthly service fee, for example. There may also be a set-up fee, and fees for missed or late payments. Check what additional fees your lender charges. It could change the affordability of a loan.
You may be using your loan to cover you until you come into some spare money, but some loans may not allow you to make extra payments, or pay the loan off early. Or, such payments may attract additional charges. Again, it’s something to check before you borrow.
If you’ve got a longer term loan, then you’ll end up paying more interest. Don’t put too much stress on your budget, but trying to pay off your loan in the shortest time possible is the best way to save on interest payments.
When taking out a debt consolidation loan, you may have the choice between a secured or an unsecured loan.
Even though you have existing debts to consolidate, if you still have a good credit rating and reliable credit history, you could be eligible as long as you meet the lender’s other criteria. Different lenders can have different eligibility criteria as well as different risk strategies, so whether or not you’re eligible can vary from lender to lender.
If you are asked to provide a guarantor for your loan, it’s important that you and your potential guarantor understand the process and obligations. The Australian Government’s Moneysmart page on guarantors has good advice for both the lender and the guarantor.
As well as a good credit history, you may be asked to provide certain documents when applying for a debt consolidation loan, things such as:
If you’re ready to compare debt consolidation personal loans, you can start here online with iSelect.* See the range of providers and simply click on an option that suits you to begin your application.