Debt Consolidation Loans

It’s easy to end up with more than one loan in our life. We may have a car loan, a credit card debt, or small loans for household stuff. It mounts up and can get costly. So, maybe it’s time to get on top of it, and round up all those debts into one, manageable debt consolidation personal loan.

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Advertised ProductProduct Image For Harmoney - Debt Consolidation - Unsecured | Fixed

Harmoney - Debt Consolidation - Unsecured | Fixed

Advertised Rate

From 5.76% p.a. to 24.03% p.a.

Comparison Rate

From 6.55% p.a. to 24.98% p.a.
An Unsecured loan with an advertised rate of 5.76% p.a. and comparison rate of 6.55% p.a.
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Showing personal loans based on borrowing $20,000 over 3 years, showing both secured and unsecured loans, with fixed and variable interest rates
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What is a debt consolidation personal loan?

A 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.

How does it work?

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.

How much can I borrow?

Your own personal circumstances will play a big part in how much you can borrow. Lenders will consider several things, like:

  • your income and employment status;
  • your outgoings;
  • your credit rating;
  • whether you own or rent your home; and
  • whether you have any dependents
  • Any other outstanding loans or credit card limits.

Personal loans are smaller than some other loans, but can still range between $2,001 and $100,000.

What are the benefits of a debt consolidation loan?

Consolidating several debts can offer you many benefits, including the following:

  • reduce the overall interest you’re paying;
  • have just one monthly payment instead of many;
  • stop potentially paying expensive loan fees;
  • avoid missed payment fees;
  • know where you stand to help you budget; and
  • free yourself from a ‘debt trap’.

Are there any downsides to debt consolidation loans?

There are a few possible ways these loans might not serve you well.

  • They won’t guarantee that you’ll never fall into debt again: f your spending habits are high and your savings generally aren’t crash hot, then you might like to reassess your overall lifestyle habits. Yes, consolidating your debts can free you up, but you need to put in the hard yards for better financial habits in the future. For more information on debt management, you can visit the Moneysmart website here.
  • There could be quite a few upfront costs: Debt consolidation loans often come with balance transfer fees, annual fees, loan origination costs, and closing costs. See more information about this below.
  • If your credit score is rather lacklustre, you might pay a higher interest rate: This could also happen if you choose to extend your loan term, so check these factors with your provider.

What kinds of things are worth considering when looking for a debt consolidation loan?

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:

  • Comparison rate

    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.

  • Interest rate

    This is the percentage of the loan amount that you will pay in interest. It does not include additional fees etc.

  • Application fee

    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.

  • What additional fees are there?

    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.

  • Can you make extra repayments?

    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.

  • Length of loan term

    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.

What types of debt consolidation loans are there?

When taking out a debt consolidation loan, you may have the choice between a secured or an unsecured loan.

  • Secured loans: A secured loan means that the lender requires you to provide an asset as security for the amount borrowed. For example, if you take out a car loan, the car is the asset that the lender uses should you default on your payments. Secured loans usually have a lower interest rate, because the risk is lower for the lender.
  • Unsecured loan: If you’re looking for a short-term loan, for a smaller amount of money, this could be a good option for you. You won’t need to offer up any assets as security, but you may be asked to provide a guarantor. The interest rates for unsecured loans are typically slightly higher.

Am I eligible for a secured personal loan for debt consolidation?

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.

What if I need a guarantor?

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.

How do I apply for a debt consolidation loan?

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:

  • recent bank statements;
  • payslips;
  • proof of employment;
  • utility bills showing your current address;
  • proof of rental or mortgage repayment proof; and
  • your lender may perform a credit check.

Where do I look to find a loan that suits me?

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.

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