There are many finance companies and other loan companies that make a lot of money by “selling” debt consolidation loans, which is a process of refinancing loans and other debt you may have.

These finance companies will often “sell” your loans on the basis that your weekly payments are lower, but they don’t always tell you they will extend the term of the loan, they don’t tell you about higher interest rates or additional fees Bill to.

People want to consolidate their debts to help their financial situation and allow them to better manage their money; however, you also need to make sure you’re not just extending the term of the loan with higher interest rates and more fees just to lower your weekly payments.

The Right Reasons to Consolidate Debt

It’s easy to feel overwhelmed by debt, and as mortgage brokers, we see many people struggling to make all of their loan payments. People may say that they should never have gone into so much debt in the short term, but there are many situations where it has happened, and anyway, there is no point dwelling too much on the past. We need to deal with the debt you have now and consider whether a debt consolidation loan is the right option.

The first thing a mortgage broker should do is get a position statement from you so they can establish exactly what debts you owe. Only then should they assess which debts should be consolidated.

This decision to refinance debt is typically based on the interest cost you’re paying on each debt, prepayment penalties (if any), the term remaining, and the actual payment amount.

You should refinance IRD debt whenever possible, as interest and penalties can be extremely high, but why would you refinance an interest-free loan?

There are times when you can refinance a loan without interest; however, you should consider this carefully in your overall debt restructuring to ensure it is the best that can be done; normally it wouldn’t.

What if I have bad credit?

As mortgage brokers, we are approached by many people who have too much debt and want to get a debt consolidation loan, but have bad credit and therefore think they can’t get a loan.

There are degrees of bad credit;

A few small non-compliances on your Veda report – we look at what they are and why they happened and generally, if we can explain them, lenders will agree with them.

Larger defaults and judgments on your Veda report – we will need a better explanation and may have limitations with the choice of lenders; however, there are a variety of lenders including non-bank mortgage lenders that have options.

Loan or Mortgage Arrears – Any new lender will want an explanation as to why the loans or mortgage are behind, and this could be why we want to arrange a debt consolidation loan.

Without looking at your personal situation there is no way to know if you can consolidate your debts when you have bad credit, but it is certainly worth a look. A debt consolidation loan could be the best way to get your credit in order and manage your way back to “good” credit.

Be careful with the costs of debt consolidation loans

Debt consolidation loan costs vary from company to company and depending on your situation and security. An unsecured loan will almost always be more expensive, so it’s definitely worth considering using your vehicle or property to secure the loan and thereby lower the cost of the loan. Also, you’ll generally pay more if you have bad credit and other situations where you fall outside the “ideal profile” set by lenders.

Debt Consolidation Loan Comparison

Obtaining the information to make a proper debt consolidation loan comparison is extremely difficult, as many of the options for you are based on a risk assessment that establishes the interest rate you would be charged.

The costs involved in a debt consolidation loan are normally;

The interest rate: Although it is often difficult to find out what the interest rate is with debt consolidation loans, you should always ask and compare this to what you are currently paying and also to any other options. Obtained from their websites, GE Money cites an example of a 5-year loan with an interest rate of 19%, and Finance Now quotes rates starting at 13.95%, as of!

Easy Loans (NZ) say they will quote on a case by case basis, Geneva Finance, QuickCash Finance, Instant Finance and Max Loans do not mention the rates we were able to find.

The fees: Many finance companies charge an establishment fee and some also charge ongoing monthly fees and termination and/or early repayment fees.

Insurance: Most finance companies will “sell” a payment protection insurance policy with every loan. This is usually a very expensive way to buy insurance and we suggest you talk to an insurance advisor instead of taking these options.

Our experience shows that many of the debt consolidation loans will have interest rates between 20-30% with an origination fee and would also have included expensive Payment Protection Insurance which would not be necessary if you already have your own Insurance. Income Protection.

Quick loans often make no sense

The focus of most financial companies offering debt consolidation loans is the speed of the application process. They advertise “1 hour approvals” and “online applications” and even the names focus on speed of acceptance with Finance Now, Instant Finance and Easy Loans (NZ) all giving the impression that you can settle your debts with the minimum . of riot

Perhaps speed is not the most important thing to consider!

You may want to consider taking a little more time to make sure you get the best option that could save you a lot of money in a very short period of time.

Negotiate payment of existing debt

Often there may be some savings you can make by paying down existing debt.

Any debt that has been turned over to a collection agency like Baycorp or Veda is often easy to negotiate at a discount if a full settlement is offered.

IRD debts often come with excessive interest charges and penalties, and a discount can often be given if you can offer a full settlement.

Most personal loans and installment purchase agreements included payment protection insurance coverage. You should be able to get a refund for the portion of coverage that has not been used due to early reimbursement.

Talk to your mortgage broker and they can help make sure you qualify for any of these discounts – they can save you a lot of money and can provide a good reason to consolidate debt.

Mortgage brokers also do debt consolidation loans.

Mortgage brokers talk to many people who have had situations where they have cash flow problems and want to consolidate debt.

Most of the time, mortgage brokers deal with homeowners or those about to purchase their first homes; however, most mortgage brokers know a lot about debt and are usually the best people to talk to when you need advice on the best options for a given situation.

Most mortgage brokers will be able to show you the true costs of a debt consolidation loan and then it’s up to you to weigh your options. Mortgage Link is one of the best mortgage brokers out there and your mortgage advisor knows how to provide you with the best options for debt consolidation and show you how to structure your debt to help you pay it off faster.

Before trying the “quick” options, consider whether it would be better to take a little more time to meet with a mortgage broker in person to ensure you get a suitable debt consolidation loan.