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Debt consolidation loans

Secured and unsecured debt consolidation loans. What is the difference?

There are two types of debt consolidation loans – secured and unsecured. A debt consolidation loan helps you join many debts together into one payment. But both types can impact you in different ways.

Secured loans ask you to use your property as ‘collateral’. This means the debt is tied to the property. Unsecured loans don’t ask for collateral. They are usually called ‘personal loans’.

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  1. Secured debt consolidation loans
  2. Unsecured debt consolidation loans
  3. Can I get a debt consolidation loan with poor credit?
  4. Alternatives to consolidation loans
  5. Is it better to pay off secured or unsecured loans?
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What are secured debt consolidation loans?

A secured debt consolidation loan works like a second mortgage. This is why it is sometimes called a ‘homeowner loan’. It is designed for people who own property to join their debt into one loan that is tied to their home.

Secured loans are often easier to get and have lower interest rates. But there are risks with using secured loans to pay back debts.

If you miss payments and cannot pay back the loan:


  • The lender can take and sell your property, and
  • Your credit rating will be affected

You need to be very sure you will be able to stick to the loan repayments and avoid having your home repossessed.

Secured loan repayment terms are often for a lot longer than unsecured loans. The monthly repayments might look more manageable, but the total debt is stretched over many years. This means you will pay much more in interest.

Find out more about what might happen if you cannot pay your secured loan back.

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Find out more about how to deal with mortgage arrears, fixed rate ending, how debt can affect your home - and more.

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What are unsecured debt consolidation loans?

Unsecured debt consolidation loans are not tied to any properties. They are also known as ‘personal loans’.

When you apply for an unsecured debt consolidation loan you are applying for new credit. It is a way to bring many debts into one place and find budgeting easier with one monthly payment. You don’t tie the debt to your house, like you do with a secured loan.

But there are still risks to think about, like:


  • More borrowing could lead to even more debt
  • New borrowing could affect your chances to get other credit
  • Paying interest for the loan increases the amount you end up borrowing
  • Not paying in full each month could mean a default notice on your credit file

Interest rates can be different based on your credit history. This means they will most likely be higher if you have a poor credit history.

If you struggle to keep up with repayments, you may be able to reach an agreement with the lender for lower payments or paying over a longer period.

Find out more about what might happen if you cannot pay your personal loan back.

Can I get a debt consolidation loan with poor credit?

If you already have poor credit, getting another loan could make your situation worse.

You will likely pay higher interest rates and fees or not be offered the best deals for debt consolidation loans.

It could also mean being offered secured consolidation loans, which means your home could be at risk if you cannot repay the loan.

For more information, read our guide to consolidation loans with poor credit.

Alternatives to debt consolidation loans

It is a good idea to check if you can really afford to repay any credit you apply for. A debt consolidation loan may sound like a simple way to feel in control of your debt, but debt management can sometimes be a safer option.

If you are not sure what to do, we recommend getting debt advice. Read our guide to debt consolidation or debt management to find out more about other ways to deal with debt.

Is it better to pay off secured or unsecured consolidation loans?

Unsecured loans are less risky than secured loans because you don’t risk losing your home if you cannot make the repayments. But that does not mean unsecured loans don’t have risks!

Use our debt consolidation calculator to find out if debt consolidation or debt advice is right for you.

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