UK Accounting Glossary
Borrowers with a number of different loans – usually which are unsecured (not secured on the property) – may find that they can replace these loans with a single loan secured on the property. This can often reduce the borrower’s monthly outgoings by paying only one loan which is secured on the property, sometimes over a longer-term.
Debt consolidation is the replacement of several small debts with one larger debt. There are several reasons for debt consolidation; a primary reason for debt consolidation is to restructure multiple high-interest debts into one lower-interest debt with a lower overall monthly payment. Another reason for debt consolidation is to extend the length of time of debt repayments with a new loan, thereby reducing the amount of the monthly payment. Debt consolidation can also be a way to turn variable-rate loans into a fixed-rate loan. For some people, the convenience of only having to service one loan as opposed to multiple loans is a sufficient reason to take out a debt consolidation loan. One of the most common sources for a low-interest debt consolidation loan is a second mortgage on a home or other real estate, although any new source of financing with a lower rate of interest than your combined current loans is a possible source of debt consolidation.
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This glossary post was last updated: 7th February 2020.