Secured Loans for Debt Consolidation

A secured loan for debt consolidation is borrowing secured against your property and used to repay existing credit commitments.

Instead of continuing to make separate payments to different credit providers, the selected debts are repaid using the secured loan. You then make one monthly repayment to the secured loan provider, alongside your existing mortgage payment.

Debts that may be eligible for consolidation include:

• Credit cards
• Personal loans
• Store cards
• Catalogue accounts
• Overdrafts
• Car finance
• Existing secured loans
• Other eligible credit agreements

Not every debt can or should be consolidated. Some borrowing may already have a low interest rate, be within an interest-free period or only have a short time left to run. Early settlement charges may also apply.

A secured debt consolidation loan does not write off or reduce your debts. It replaces the selected commitments with a new credit agreement. You will need to repay the amount borrowed, together with interest and any applicable fees.

A secured debt consolidation loan is normally registered as a second legal charge against your property. It is therefore often called a second charge mortgage or homeowner loan.

Your original mortgage usually remains in place. You will have two separate agreements:

• Your original mortgage with your existing lender
• The secured loan with the second charge lender

The first step is to establish how much is needed to repay the debts you want to consolidate. This may involve obtaining up-to-date settlement figures from your credit providers.

A secured loan lender will then assess your application. Its decision will normally be based on your income, expenditure, credit history, existing mortgage, property value and available equity.

If the application is approved and the loan completes, the money will be used to repay the selected commitments. Depending on the lender’s process, it may pay your creditors directly or require confirmation that the accounts have been settled.

You then repay the secured loan over the agreed term.

Homeowners may consider a secured loan when they have several credit commitments with different providers, interest rates and payment dates.

Because the borrowing is secured against a property, lenders may consider larger loan amounts or longer repayment terms than would normally be available through an unsecured personal loan.

A secured loan can also allow you to retain your existing mortgage. This may be relevant if your current mortgage has a competitive interest rate or is subject to an early repayment charge.

Potential reasons for considering secured debt consolidation include:

• Combining eligible debts into one repayment
• Making monthly finances easier to manage
• Potentially reducing immediate monthly outgoings
• Borrowing more than may be available through an unsecured loan
• Repaying the loan over a longer period
• Keeping an existing mortgage product in place
• Avoiding an early repayment charge on the main mortgage
• Accessing lenders that assess applications individually
• Exploring options following previous credit difficulties

These are potential benefits and are not guaranteed. The costs and risks must be considered before deciding whether to proceed.

Choosing a secured loan for debt consolidation involves more than finding the lowest monthly repayment.

MortgageKey can review:

• The debts you want to consolidate
• Your current monthly commitments
• Your income and regular expenditure
• Your credit history
• The equity available in your property
• Your existing mortgage rate and charges
• The proposed secured loan term
• The likely monthly repayment
• The total amount repayable
• Alternative ways of raising the money

Where a secured loan is appropriate, we can search for a suitable product and explain the costs, risks and repayment terms before you decide whether to proceed.

All lending is subject to status, affordability, eligibility and the lender’s criteria. The interest rate and terms available will depend on your individual circumstances.