13 Frequently asked questions about consolidation loans


There is a general misconception that loan consolidation is a last resort when looking to manage your finances. This is one of the major issues; many people leave it too late to consider debt consolidation loans and may struggle for approval. The idea that your finance difficulties will “sort themselves in due course” is a fallacy, as for many people, their financial status will worsen if no action is taken. This is where getting a consolation loan can help. By putting your debt into one affordable system you can help alleviate stress and step forwards.

If you are considering loan consolidation, you will likely have numerous questions you would like answered. No matter how trivial or basic the question may seem, it would be best if you asked your financial adviser while reviewing your situation.

What should I consider before debt consolidation?

Before considering debt consolidation, try where possible to maintain your existing repayments. If you have particular issues with one creditor, maybe a credit card, approach the provider directly to discuss a short-term repayment holiday or rescheduling of debt repayments.

Loan consolidation is the last resort for many people, although there will likely have been signs many weeks or months previous. While many people are tempted to “bury their head in the sand” and assume everything will turn out right in the end, this rarely happens. Consequently, there are several actions you can take before considering a debt consolidation loan:-

• Try where possible to keep up-to-date with your existing debt repayments
• If you are having short-term issues, approach your creditors with a repayment plan
• Cancel credit agreements to remove the temptation to borrow more funds
• Seek impartial advice

At some point, you will have to face your troubles, sit down with a piece of paper and list all of your debts, income and assets. While this can be a sobering moment, it is crucial that you are fully aware of your financial challenges. Only then can you consider the appropriate action.

What are the benefits of a consolidation loan?

There are numerous physical benefits of a consolidation loan, but the mental benefits can often far outweigh these. Bringing your finances back under control and lifting a considerable burden can act as a reset from which you can build for the future.

For those experiencing financial difficulties, there are potentially huge benefits in taking out a consolidation loan, which include:-

• Consolidating debts under one monthly repayment
• Eliminating late payment penalties
• Negotiating a loan duration which fits your ability to pay
• Avoiding further damage to your credit rating
• Removing the uncertainty and tackling the problem head-on

It is vital to put in place a new budget plan that considers debt repayments, affordable living expenses and greater management of your finances.

Can I get a consolidation loan with poor credit?

While there may be fewer options if you have a poor credit score, many companies specialise in finance for those with problematic credit histories. So, it is by no means out of the question.

Like any financial transaction, whether or not you can secure a consolidation loan depends on the risk/reward ratio. It is important to note that any responsible lender would not provide debt consolidation finance if there were no means of covering repayments. This would make a difficult situation even worse when there may be other alternatives to consider. For example, you may have assets available that you can use as collateral or a third-party guarantor, which would improve your chances of securing finance.

Does consolidating credit hurt your credit score?

Many people seeking loan consolidation finance will already have missed payments and seen a negative impact on their credit score. However, consolidating debts will bring your finances under control and should mark the start of your long-term recovery. A strong step could actually be to consolidate your debt.

Those who take pre-emptive action when they see financial issues on the horizon may be able to protect their credit score before it takes a downturn. However, for those unable or unwilling to take action before their finances take a downturn, there could be a significant impact on their short-term credit rating. In reality, if you are suffering financial hardship, your focus should be on regaining control of the situation instead of concerns about your credit score.

The theory behind loan consolidation is simple: putting your finances on a firmer footing with affordable repayments. This should be the nadir of your financial challenges and an opportunity to rebuild.

Why is it hard to get a consolidation loan?

Unfortunately, many of those seeking consolidation loans can leave it too late. Consequently, it may be challenging to cover repayments, and this option may sometimes be unaffordable.

Any responsible lender will consider a customer’s ability to pay before approving any debt consolidation arrangement. There is no point in offering unaffordable finance as this will only worsen a difficult situation.

It may be possible to rein in spending, calculate a new monthly budget and endure some short-term financial pain for long-term gain. However, the sooner you face your financial challenges, the more options available and the greater the likelihood of securing debt consolidation finance.

Do debt consolidation loans get paid to you?

Typically, the lender will repay existing debts directly to your creditors once your application has been approved. This ensures that funds are directed where they are most needed and avoids the temptation to retain or spend these funds.

Once you begin the debt consolidation loan application process, you will be working very closely with your lender. First, an in-depth review of your finances will determine whether debt consolidation is an affordable option. Then, assuming you can cover future repayments, your lender will arrange for existing debts to be repaid, conversing directly with the relevant third parties. It is all about taking back control of your finances, with repayment of existing debts a vital milestone in the early days.

What type of loans and debts can be consolidated?

The range of debts which can be consolidated is considerable, taking in credit cards, personal loans, mobile phone bills and household utilities, to name but a few.

During the initial review of your finances, you will be asked to provide a summary of your debts, at which point the lender will confirm whether or not they are eligible for loan consolidation. Some of the more common debts you could consolidate include:-

• Credit cards
• Car loans
• Student loans
• Medical bills
• Utility bills
• Rent arrears
• Payday loans
• Unsecured personal loans

Conversely, there are some debts which you are not able to consolidate. These include:-

• Home loans/mortgages
• Government loans
• Lawsuits
• Tax debts
• Secured loans

If in doubt, ask your lender!

Who can apply for a debt consolidation loan?

You must be at least 18 years of age and a resident of New Zealand to apply for a debt consolidation loan.

When applying for any finance, you will be asked to supply proof of ID and address. While any loan approval will be subject to status, in theory, you can apply for a debt consolidation loan if you are at least 18 years of age. However, it is essential to note that different lenders have different criteria, with some specialising in consolidation for those with complicated credit histories.

How long can I take a consolidation loan over?

Alternate Finance has a standard maximum 36 month loan period although this is open to negotiation based on ability to pay.

It is an important balancing act, considering affordable repayments and loan duration. Obviously, the longer the duration, the more interest you will pay, but the lower the monthly repayments. However, as the risk can be reduced with lower monthly repayments, you may receive a preferential interest rate. Understandably, many people seek relatively short loan durations to repay their debts as quickly as possible. Unfortunately, this is not always the best course of action, and it is sensible to leave some headroom between affordable and actual repayments. It would be best if you discussed this in detail with your lender.

How soon will I get my money?

Due to the time-critical nature of debt consolidation, most lenders will make a decision within 24 hours of your application.

Assuming all of the relevant information is supplied, you should receive a decision from your lender relatively quickly. This could be in as little as 24 hours for fairly straightforward applications. There may be additional information required in some cases, but your lender is aware that time is of the essence. Once your debt consolidation application has been approved, funds will be available almost immediately.

Is there an early repayment charge?

As the concept behind loan consolidation is recovering your financial status, normally, there is no early repayment charge.

When considering the duration of your consolidation loan, erring on the side of caution may facilitate early repayment further down the line. In addition, leaving sufficient headroom between income available and monthly repayments can reduce short term financial pressure, allowing customers to focus on rebuilding their finances.

What is the interest charge on a consolidation loan?

The interest charged on a consolidation loan will depend upon your status and any associated collateral or guarantor.

Alternate Finance offers competitive rates for those with a troubled financial history, ranging from 13.95% to 26.98% per annum. The inclusion of collateral or a guarantor will reduce the risk, therefore, likely lead to a lower interest rate. As a responsible lender, only affordable consolidation loan applications will be approved. We are not in the habit of making a difficult situation worse and will be honest and upfront about your options.

Can I make additional repayments?

Yes. If your financial situation improves and you have surplus funds available, these can be used to make additional repayments.

Once your finances are back under relative control, reducing the associated stress, you will be able to focus on improving your financial situation. Many people undertake a detailed review of their finances each year while closely monitoring their financial health on an ongoing basis. While it is essential to be prudent regarding additional repayments, if they are affordable, this will save you interest and reduce the duration of your loan.


If you see financial challenges on the horizon, you must take action sooner rather than later to maximise your options. Unfortunately, it may not always be possible to be proactive, but it is still important to seek assistance as soon as possible. There are numerous issues to consider with loan consolidation but handled correctly; they can reduce short-term financial stress, allowing you to look to a brighter future.

Mark Benson

Mark Benson, a renowned and astute stockbroker/financial adviser spending the majority of his finance-related career operating in the United Kingdom. With 16 years+ experience in the financial sector. he still maintains a strong interest in all things financial. Over the years, he has written about subjects such as property finance, loans, pensions, insurance, stock market investments, tax planning and more. Mark believes it is essential to keep up with the latest financial regulations and adapt your finances accordingly, something he portrays in his financial articles.

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