Getting personal loans, among others is not easier than ever. Lenders have lowered the requirements for most types of loans and they have reduced the restrictions on what can be done with the money. However, the interest rates have not changed, which means that, while it is easier to get a loan, the impact that it will have on an individual’s monthly budget is still as large as ever. This has led to situations where borrowers have taken out several loans, some with variable interest rates, only to discover that their debt has become too expensive to reliably support out of their monthly income. In some cases, it is possible to convince the lender to refinance a loan, however, this process has certain requirements that not all borrowers can meet.

Luckily, there is always the option of consolidating the debt and retaking control of one’s finances. Most lenders offer this option and the application and evaluation process usually takes under one month. Here is what you need to know:

What Is Debt Consolidation?

Debt consolidation refers to the process through which an individual can take all of his outstanding debt, regardless of form (it can come from maxed credit cards, personal loans, payday loans, and anything in between), and consolidate it in a single form of debt that has one interest rate and one monthly repayment date. For all intents and purposes, debt consolidation is done through a relatively large, secured personal loan. It usually comes with a term of at least 5 years and has a fixed interest rate. This having been said, it is important to keep in mind that some lenders may place restrictions with what can be done with the money. For example, depending on an individual’s credit rating, a bank may restrict the usage of a debt consolidation loan to repaying money that has been loaned by the bank itself. However, these are isolated cases.

Applying for a debt consolidation loan is easy. The borrower must go to the bank and ask to have his debt consolidated. He will be made an offer by the bank’s representatives and then discuss what property will be used as collateral. In most cases, lenders request that the loan be secured against the borrower’s home. This will give him access to a large debt consolidation loan that will have to be repaid just like any other loan.

Why Get a Debt Consolidation Loan?

Having multiple forms of debt is not only a financial nightmare but a scheduling one. Each loan has a different interest rate, a different value, and a different monthly repayment date. Keeping up with several forms of debt is difficult and can also be extremely expensive, particularly if you have any variable interest rate loans. A debt consolidation loan helps simplify things by enabling individuals to take out a single, secured loan that is large enough to cover most if not all other forms of debt. This leaves borrowers with a single affordable loan to worry about.

How to Use It?

As the name implies, these loans must be used to consolidate one’s debt. In other words, the more forms of debt one can repay using the money from it, the better. Start by repaying the smallest loans that have the highest interest rates. This should include credit cards and payday loans. After that move to larger ones. However, it is important to keep in mind that some loans may have early repayment fees that need to be repaid. Furthermore, it is a good practice to first try to refinance as many loans as possible. This will allow borrowers to get the lowest possible interest rates before consolidating the debt.

A home equity line of credit is one of the most affordable ways to borrow money from a bank. The fact that these lines of credit are secured against the borrower’s home equity allows the lenders to offer very low-interest rates and high values. They offer a large degree of freedom, as the money can be used for anything that the borrower needs, and can even be refinanced in case of an emergency. This having been said, getting a HELOC is not a particularly easy process.

There are several moving parts that both borrowers, as well as lenders, need to consider before coming to an agreement. Generally speaking, requesting a HELOC and having the application accepted can sometimes take over 30 days. However, this time can be shortened by doing a few things prior to submitting your application to the bank.

  1. Establish the Value of Your Home

A home equity line of credit needs to be secured against the equity that the borrower has in his home. This means that a full appraisal may be required, depending on how much the real estate market has changed since the borrower has bought the home. Go to the bank and ask if the appraiser can be brought in by the client or if the bank has its own specialist. If borrowers can have their home appraised and then submit the results to the bank, it is advisable to do that as soon as possible. This can cut 3-4 days off of the application process.

  • Give Your Credit Rating a Boost

Generally speaking, having an ample financial history that lenders can look at is useful, however, having many outstanding debts or a low credit rating can, in fact, lengthen the eligibility process. Try to pay off your credit cards before applying for a HELOC. Also repay your any short-term loans that you may have, such as payday advances. This will not only give you a slight credit boost but also shorten the time it takes the lender to approve your request.

  • Ask the Bank Clerk to Send You a List of Requirements

 Most bank clerks will be able to send you a list of all the documentation that is required to get a HELOC. Most of these documents must be submitted by the borrower, and it is better to have them prepared when first going to the bank to discuss the line of credit.

  • Get Your Papers in Order

Make sure that all the required documentation is in order. Half of the cases where the approval process for a HELOC is slowed down is due to a mistake in spelling or an error in the documentation. Go through all of the papers that you need to submit and make sure that the addresses, names, personal identification details, and signatures are spelt correctly and clearly visible. Furthermore, keep the documents together so that you don’t forget anything when going to the bank.

  • Send the Documentation Digitally (Email or the Bank’s Website)

Some banks allow their clients to send in the documents needed for loans through email. While it is usually better to submit them yourself, to a bank clerk, so that he may explain if anything is not in order, it can be faster to send the documents digitally. This is usually a foolproof method if you have constantly been in contact with a bank representative and have followed his instructions regarding the required documentation. Sending the documents digitally enables bank clerks to redirect them to the headquarters faster, further reducing the evaluation time.

HELOCs are extremely popular among homeowners who plan to undertake home renovation projects or need access to very large amounts of money, in general. They are useful for large recurrent expenses, or developing projects on which it would be difficult to put a price tag. Regardless of the reason behind their decision, a lot of individuals are currently applying for HELOCs. However, as useful as these financial products might be, they are also extremely dangerous, especially during times of economic instability. The Covid-19 pandemic has reduced the incomes of many families throughout the country, some of which are currently trying to repay their HELOCs. In some situations, repaying the money on time may become impossible, which puts many individuals at risk of losing their homes. This having been said, being unable to repay a home equity line of credit does not necessarily mean that the lender will take possession of your home. There are ways to avoid this unfortunate outcome. Here is what you need to know:

The Lenders Want Money, Not Homes

One of the most common mistakes in these situations is that some people give up right from the beginning, thinking that the bank is looking forward to taking possession of their home. In reality, lenders are aware that in some situations, borrowers may not be able to repay the money on time. As a result, most will agree to work with the borrowers to find a solution. Generally speaking, lenders would rather get their money back than take possession of the borrower’s property. The first thing that an individual should go if he finds that he can no longer repay his HELOC is to go to the bank and explain the situation. Chances are that, if there is an ongoing national or international crisis, the bank will already have had developed repayment alternatives.

In most cases, lenders try to work with the borrowers and help them repay the money more easily. This can be done by refinancing the loan or through other deals.

Save Money Wherever Possible

If your income has been reduced for whatever reason, consider reducing other expenses to save as much money as possible. This can include a wide variety of creature comforts from things like Netflix subscriptions, getting food from the farmer’s market instead of the supermarket (the difference in price may not be much, but every bit helps), etc. Keep in mind that the purpose here is not to cut your monthly expenses enough to manage to repay the HELOC, however, when the bank offers another deal designed to help you repay it, you will have to have enough money to take. Most lenders refinance loans to give borrowers more time to repay them, but they do not allow individuals to postpone payments.

Consider Getting a Debt Consolidation Loan

One of the most often-used ways to get an expensive loan under control is through debt consolidation. These loans use the borrower’s home as collateral, they have long repayment terms (up to 10 years), and relatively low-interest rates. The best part about them is that they can be used to repay virtually any type of debt, including lines of credit. Consider applying for a debt consolidation loan, especially if you have other forms of outstanding debt. In some cases, repaying these in full may allow individuals to redirect some of their monthly income towards repaying the HELOC. If you have debt on your credit cards, a personal loan, a payday loan that needs to be paid, or anything in-between, make sure that you repay these first. This may reduce your monthly expenses enough so that if you also budget your income, you will be able to repay the home equity line of credit.

The Covid-19 pandemic has swept the globe, reducing the income of many individuals and even leaving some without jobs. This is a serious issue by itself, however, if we are to also factor in the fact that unexpected expenses tend to appear relatively frequently, it is safe to say that some individuals may simply not earn enough to get through the current economic and health crisis. This issue has pushed many to get loans from banks, only to discover that they have a difficult time repaying the money.

However, this is usually the case when the borrowers act hastily and do not consider all the lending options that they have at their disposal. This having been said, we will look at what are the best loans to apply for during the Covid-19 pandemic.

Unsecured Personal Loans

Personal loans have always been the people’s choice when it comes to borrowing money from banks, and they are still extremely useful during the Covid-19 pandemic. They have low-interest rates, relatively high values and getting one does not require individuals to have perfect credit ratings. Furthermore, the application and evaluation process usually takes under 5 days, making them great for those who have urgent expenses that they need to cover. It is also worth mentioning that there are no restrictions on what borrowers can do with the money. This means that personal loans can be used to pay for medical treatments and procedures, home repair projects, household appliances, electronic equipment such as laptops and smartphones, and others.

Generally speaking, personal loans are the best go-to solution when an individual needs to pay for an expensive product or service. However, it is important to make sure that the loan is unsecured. This does slightly increase the interest rate of the debt but reduces the risk on part of the borrower.

Home Equity Lines of Credit

Many individuals look at HELOCs and think that getting a line of credit that is secured against the borrower’s home is not a good idea during a pandemic. However, this is exactly the reason why these loans are perfect for times of financial instability. Traditionally, HELOCs have very low-interest rates, making them one of the most affordable ways to borrow money. Furthermore, while borrowers gain access to the full amount that they borrow, they only pay interest for what they withdraw from the line of credit. In other words, if an individual gets a £100,000 home equity line of credit and the only withdraws £500, he will only pay interest for those £500. Furthermore, it is not necessary to repay the money by the end of the month.

HELOCs are designed to be used for several years, leaving borrowers to repay the money, at their leisure. The only condition is that the money needs to be repaid in full by the end of the agreement. In many ways, home equity lines of credit can be used as credit cards, but they have much lower interest rates. Furthermore, using them on a monthly, weekly, or daily basis will not affect the borrower’s credit rating.

Keep in mind that as useful as HELOCs may be, they can still cause individuals to lose possession of their home in favour of the bank. If you apply for a HELOC, only use it when it is necessary and try to always repay the money by the end of the month or the month after. If an individual withdraws only £500 during the first month, the interest rate will not be much, but it will be recurrent. However, continuing to withdraw money monthly without repaying it can lead to having to pay very high-interest rates.

Loans and mortgages are subject to an interest rate, either a fixed rate or variable rate. The fixed interest rate remains constant while the variable interest rate follows the current rate based on prevailing bank rates. When bank rates go down, you will be paying less interest while if it goes up, you will be paying more. During the pandemic, it is imperative to properly manage your loans and mortgages to avoid paying high interest in the future.

Here are some ways of managing your variable-rate loans.

Continue Paying Your Loan

The trend in the UK indicates a continuous rise in interest rate. The rise might not be too steep, but if you have borrowed a few thousand, the cost of your loan could increase drastically. If you have a loan of £10,000 and the payment period is five years, you might have to pay more than you had projected when you made the loan. During this pandemic, banks and other lending companies allow clients to avail of the payment holiday for at least three months. A payment holiday of three months might give you a reprieve; it would have an impact on the amount that you must pay. As much as possible, it would be a wise move to continue making the payment if you can afford it. You could save a significant amount in terms of interest.

Avail of Government Financial Support during the Pandemic

In the UK, the government provides financial assistance to people that lost their job or have their salaries cut due to the closure of many businesses. Please find out how you can avail of the financial help and use it in paying your loan to avoid having to pay more interest in the near future.

Cancel Credit Cards to Reduce Debt

Credit cards may cost more when variable interest rates rise. Now is time to decide whether to cancel or continue your credit card. Continuing with your credit card can be costly in the coming months. To get away from paying a high – interest rate, you can cancel your credit card. Aside from helping you avoid the random purchase of unessential items, you would not suffer from the impact of the rise in interest rate.

The same applies to car and house loans. If you have the money to pay off existing mortgages, now is the time to do it. If you think about enjoying payment holidays, think about the interest rate that your debt could incur after three months.

Pay Extra

The pandemic might bring low- interest rates in consideration with the financial difficulties that lockdowns bring.  Once business improves, expect a surge in interest rate. Pay your payday loan in advance if you can afford it now to reduce your debt that is bound to have high interest in the near future.

However, there are debts that you cannot pay in advance or might charge you a fee for advance payment. However, you can compare the penalty that you must pay for paying in advance and the projected increase in interest rate. If the penalty for advance payment is less than the projected interest increase, making an advance payment will be advantageous to you.

Go for the Best Deal

People that need of a loan can avoid the impact of the rise in interest rate by going for the best deal. Shopping around for a loan before applying to one lending company will save you from credit checks that can affect your credit rating. Always compare interest rate, repayment period, and other terms and conditions such as penalty for delayed payments and early full payment of the loan.