Consolidate expensive debt to reduce interest, lower payments & stop late fees

Access the money tied in your home to get great consolidation loan rate from leading UK lenders

How much can I borrow on a debt consolidation loan?

Figures from Credit Action show that the average household debt in the UK (excluding mortgages) was £7,891 in May 2012. If you have credit cards, personal loans, overdrafts or store cards then you may be looking for ways to consolidate your debts and reduce your monthly outgoings.

A debt consolidation loan is a great way to simplify your finances, reduce your interest rate and save money on your debt repayments. But what is a debt consolidation loan? And how much can you borrow on such a loan? We answer these questions and more.

What is a debt consolidation loan?

A debt consolidation loan is a loan that allows you to repay some or all of your existing debts. If you have outstanding credit cards, loans or store cards you can borrow money on one debt consolidation loan to repay these other borrowings.

Instead of several debts to a number of creditors you have one larger loan with one creditor and one monthly repayment.

Many debt consolidation loans are taken out on a ‘secured’ basis. This means that the lender takes a legal ‘charge’ over your home which is used as security for the loan. You should bear in mind that a secured debt consolidation loan means that your home will be at risk if you don’t keep up repayments on your loan.

If you are looking for a debt consolidation loan you will need to know how much you can borrow. We answer this question next.

How much can I borrow on a debt consolidation loan?

When approaching a lender for a debt consolidation loan, the simple answer is that there is no set amount that you can borrow. The amount you can borrow on a debt consolidation loan will depend on a number of factors and on your personal circumstances.

For a secured debt consolidation loan, your borrowing potential will depend on the amount of equity that you have in your home. Your equity is the difference between any outstanding mortgage and secured debts and the value of your home. The higher the amount of equity you have, the higher your debt consolidation loan borrowing potential will be.

For example, if you have a property worth £150,000 and a mortgage of £90,000, your equity is £60,000. Lenders will typically allow you to take a loan of up to 80-90 per cent of the value of your home, less any existing secured debts or mortgages.

Your debt consolidation loan will also be determined by your income and outgoings. A lender will generally want to be sure that you have sufficient income to cover both your main mortgage and your debt consolidation loan.

A lender will generally look at your total income and outgoings and decide whether the loan will be affordable to you. Of course, taking out a debt consolidation loan may often leave you with much lower monthly outgoings and taking out the loan will actually make your finances easier to manage.

The amount you can borrow on a debt consolidation loan will also depend on the amount of debt that you are looking to repay. You should total up your outstanding debt – including any interest penalties for paying back loans early – to determine what size loan you need.

Finally, your debt consolidation loan amount may be determined by your credit rating. Lenders will generally obtain your credit information from a credit reference agency as part of the underwriting process. If you have a clean credit record you may be able to borrow more than if you have experienced credit problems in the past.

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