Citizens Advice urges caution with consolidation loans
April 16, 2007 by admin
Filed under News, News-Loans
With record numbers of consumers struggling to pay off unsecured loans, a consolidation loan can sometimes be seen as a reasonable way out, but Citizens Advice
has warned debtors to consider all options before signing up to the agreement.
Speaking to The Observer, Peter Tutton, a social policy officer specialising in credit and debt for Citizens Advice, stated that an alarming number of people were signing up to consolidation loans when in fact, these agreements could make them worse off financially.
“There are problems with secured consolidation loans – we’re seeing lots of evidence that where people do get into [financial] trouble, they’re being pushed into consolidation,” said Mr Tutton.
Problems arise when consumers take out a secured consolidation loan for an unsecured debt and find that if they cannot meet the repayments, their home is now at risk.
James Ketchell, a spokesman for the Consumer Credit Counselling Service, added that in some circumstances, consolidation loans could be beneficial as the interest rate is often lower than with an unsecured loan.
Having said that, he stressed that in general, it was only a solution for five or six years, since consumers usually then built up more credit card debt and personal loans and put themselves into an even worse situation than before.
Consumers are advised to seek independent advice if they are concerned about their financial status and to consider all of their options before signing up to a fiscal agreement.
