An overdraft allows you to borrow money from the bank through a current account. Essentially, if your account balance drops below £0 after a transaction, you are in an overdraft with the bank. An overdraft that has been arranged with the bank on demand, or is pre-set by the bank, is called an arranged overdraft.

Your overdraft limit will normally be set by the bank or the lender if you’re eligible for an arranged overdraft. However, it is important to remember that the lender will impose interest for using this facility. In the case of arranged overdrafts, there’s a zero-interest window in the initial months of repayment, but the interest rates sky-rocket as soon as this window expires.

On the contrary, in an unarranged overdraft, you spend more than your account balance without officially arranging an overdraft first. You could also dip into an unarranged overdraft if you spend above your limit in an arranged overdraft. An unarranged overdraft could incur a high-interest rate and potentially harm your credit score. Therefore, if you plan on using an overdraft, it would be best to keep your lender informed.

Debt consolidation loans are one of the most convenient and efficient ways of consolidating high-interest debt that one may accrue from credit cards and bank overdrafts. Through this method, you essentially combine all your ongoing high-interest debts into a single loan. This way, you’re only left with one, potentially, low-interest debt to pay off.

Unsecured debt consolidation loans serve as an excellent opportunity to organize your finances without putting up any collateral. But to truly reap the benefits of debt consolidation, you may want to borrow a loan with lower interest rates. Your credit score and income stability can increase your chances of obtaining a low-interest debt consolidation loan. A better credit score implies a lower risk proposition for lenders.

With LoanTube, you can borrow from £1,000 – £35,000 over 12-84 months without any collateral security, sufficient to settle all your existing debts. Whether you’re a homeowner or a tenant, LoanTube can help you get out of debt tangle with ease.

When you choose a debt consolidation loan offer, the lender will put your profile through a hard credit enquiry to assess your repayment ability. Once you qualify the credit check and complete contractual formalities with the lender, they will transfer the money directly into your bank account. You can then use this lump sum to settle your ongoing high-interest debts. After your debts have been paid off, you’ll only be left with a single loan to repay, allowing you to budget and track your repayments effortlessly.

Lenders use your credit score to assess your repayment ability and risk when lending you money, so it’s crucial in the loaning process. You can get better interest rates with a credit file with a good credit history. However, low credit scores can make it challenging to obtain debt consolidation loans at lower interest rates. As a result, you may still be eligible for debt consolidation loans with a low credit score. Still, you may not qualify for competitive interest rates.

Here’s why it makes sense to pay off your overdraft debt using debt consolidation loans:

• To unclutter your finances: Debt consolidation can be a good way of simplifying your financial obligations. Tracking repayments and interest rates are more manageable when you pay one debt. 
• Making an efficient budget can be cumbersome to juggle a heap load of unmanaged debt at once. Incorporating multiple debt repayments into your budget can be a challenge. You might miss out on a repayment or two in the confusion. Debt consolidation loans where you’re only left with a single refund each month facilitate efficient budgeting.
• To get a low-interest debt consolidation loan: A debt consolidation loan will be fruitful if you find an offer with an interest rate lower than the interest on all your ongoing debts combined. 

Borrowing an unsecured debt consolidation loan is easier if you know exactly how much money you need to settle your ongoing debts. Plus, since the loan is unsecured, you will not be required to pledge any assets to secure it. But even unsecured loans have profound repayment implications. Consider the following before making your final call:

Is this a suitable loan amount for me? 

Assessing your ability to repay a loan should be the first step before applying for one. It is essential that you only borrow an amount you can repay within the mutually-agreed repayment period.

Will I be able to commit to the loan term?

Long-term loans demand more commitment. You may be able to lower your monthly payments with a long term loan, but you may end up paying more interest over time. Determine the correct term for your financial situation.

What happens if I miss a repayment?

You might lose a few points from your credit score if you miss a payment. The consequences of multiple missed payments can lead to a default, which may be followed by a County Court Judgment (CCJ) affecting your credit score severely. A CCJ stays on your credit report for up to 6 years, hampering your chances of securing credit in the future. Thus, you must pay off your debts on time and maintain healthy credit.

Do I need a contingency plan?

Staying on top of your repayments will be easier if you have a contingency plan for dealing with emergencies. Make an informed decision before borrowing a debt consolidation loan. Suppose the interest rate on your debt consolidation loan is more significant than all of your debts combined. In that case, it may not be worthwhile. 

Will I incur an early repayment charge? 

Some lenders levy additional charges on early repayment or settlement of loans. This detail is usually mentioned in the fine print of your loan agreement. When you borrow a debt consolidation loan to pay off your debts, you are essentially settling your debts once and for all. Suppose your lender imposes an early settlement fee that costs you more overall. In that case, it might defeat the whole purpose of consolidating your debts. Thus, you must ensure that none of your debts come with an early repayment or settlement fee.