Debt consolidation loans

What is a debt consolidation home loan?

A debt consolidation loan is a specific type of loan designed to combine multiple personal debts into a lower-interest loan. Debt consolidation bundles your debt with your home loan to make one monthly repayment.

Since home loans generally have much lower interest rates than unsecured debts, consolidating these loans could help reduce the amount of interest you pay. That way you can pay the debt back over a longer repayment term at a lower interest rate.

If you are currently paying off debts such as credit cards, car loans or personal loans, consolidating debt with your home loan could help you save money on interest. Some lenders can also add the debt as a separate split with its own separate repayment.

So if for instance, you have a car loan you are paying off with an 8% interest rate you can consider using your home loan to pay off the car. The advantage of this option is that you can repay the debt at your (typically much lower) home loan interest rate instead of what can sometimes be high interest rates on unsecured debts.

If you take out a separate loan you can also choose a shorter loan term, e.g. 5 years, as you would have with the consumer loan, to ensure you do not extend the debt over 30 years.

What types of debt can I consolidate?

By consolidating these debts with your home loan, you could repay your debt at a lower interest rate.

The most common types of debt consolidated include:

  • Credit cards or store cards: These cards come with notoriously high interest rates and with no set repayment term meaning you might never pay it off.

  • Personal loans: These loans generally come with high interest rates and a set time to be paid back.

  • Car loans: These loans usually need to be repaid over a period of 1-5 years and can also be consolidated into your home loan.

  • Other credit accounts: Some lenders give you the option to process more private credit accounts like utility bills for electricity, phones and TV. However, not all debt consolidation loans have these features so it’s best to check with your lender first.

How can I consolidate my debt?

Firstly you need to find out if consolidating debt will put you in a better financial position.

Check your equity

Chat to a Home Loan Specialist to check if you are eligible and if your current loan qualifies.

The first thing we’ll do is check that you have sufficient equity in the property (usually through a bank valuation) and make sure you can repay the new debt.

Calculate your savings:

You’ll need to work out if your monthly repayments after consolidating will be lower than your current repayments. You can calculate your savings by using our handy calculator.

Got a complex situation? A Lendi Home Loan Specialist can calculate this for you and help choose the right consolidation option for your situation.

Before you can start saving, you’ll need to provide a number of documents so your chosen lender can assess your eligibility. These typically include:

  • Home loan statements for the past year for your existing loan

  • Recent payslips (last three months)

  • Most recent group certificate/PAYG summary

  • Recent loan statements for any other debt

  • Copy of your most recent council rates notice

  • ID verification (passport, drivers licence, birth certificate, marriage licence)

When can I consolidate debt?

Some lenders can make you wait up to 6 months from taking your home loan out before you can increase it. However, depending on the reason, the majority of lenders are now open to it straight away, depending on the strength of the application and purpose of the funds.

Why should I consider consolidating my finances?

If you have existing loans, consolidating debt with your home loan can potentially save you a lot of financial stress. Before you decide to consolidate you need to work out if you’ll be financially better off in the long run.

#1. Save money and improve cash flow

If you have landed in some financial difficulty, debt consolidation could be a way to free up some extra cash flow to help you manage your other financial obligations such as phone bills, internet and utility bills.

#2. Consolidate to a lower interest rate

Unsecured debt, such as credit cards, come with higher interest rates (generally between 15-20%), meaning they are more expensive to pay back. Home loan rates usually stand between 3-6% depending on your personal circumstances. That’s why consolidating this personal debt into your home loan can mean you will pay a lower interest rate overall, ultimately saving you money.

#3. A debt management option

Applying for a debt consolidation loan can be a great way to manage debt and budget for outgoing expenses. It can help you avoid defaulting and damaging your credit rating.

#4. Make only one monthly payment

Instead of managing multiple debts, you’ll only need to look after one loan with a regular monthly repayment term.

#5. Extend your repayment term

Personal loans and car loans usually need to be repaid in a set period of time. When you consolidate, the repayment term will be the same as the home loan. You need to consider if you want to repay shorter loans such as car loans for this extended length of time.

Want free expert advice? Discuss your options with a Home Loan Specialist.

How can I get approved for a debt consolidation home loan?

In order to qualify for a debt consolidation loan, you will need to prove you’re trustworthy and able to manage your finances. The ideal borrower will have the following:

  • A good credit score

  • Evidence of regular home loan repayments from the last 6 months

  • Have paid credit cards/other loans on time for the last 3 months

  • A history of stable employment and be currently employed for at least a year

  • You'll need sufficient equity in your property - if your LVR is over 80% you may be incur LMI

Can I consolidate debt if I have bad credit?

If you possess a bad credit history some lenders may consider you an ‘unsafe’ borrower and deny your debt consolidation application.

However, all is not lost. There are a number of Australian lenders who can give loans to people with low credit ratings and there are a few things you can do to help boost your chances of approval.

  • Review your bad credit: Firstly, you need to know the extent of your bad credit rating. You can obtain a copy of your credit report from any credit report agency for free.

  • Pay your existing debts on time: You may not be eligible for a consolidation loan now due to your credit history, but if you spend six months making sure that you pay every bill and debt on time, your chances are likely to improve significantly.

  • Don’t apply for lots of loans at once: Remember not to over apply to lenders as too many credit checks over a six month period of time can negatively impact your credit score. Lenders may suspect that you have been declined for other loans and view you as a risky borrower.

  • Review your debt position: Once you’re aware of your credit history, make a list of the personal debts you would like to consolidate into your home loan. Separate unsecured and secured loans from each other and check if they have penalty fees. Contact your existing lender to assist you and obtain a written copy if possible.

Important legal stuff

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# Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
Lendi is a privately owned and operated Australian business. Our mission is to change the way Australians get home loans by providing a faster, smarter and more secure home loan experience designed around the customer’s convenience and needs. Although Lendi compares over 1600 products (2,500+ products including feature and pricing variations) from more than 35 lenders, we don't cover the whole market or compare all features and there may be other features or options available to you. While Lendi is 35% owned by founders and employees, we have also been supported by some great minority shareholders including Bailador, Macquarie Bank Ltd and a number of Australian sophisticated investors.
*WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The comparison rates are based on a loan amount of $150,000 over a loan term of 25 years. Fees and charges apply. All applications are subject to assessment and lender approval. Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
IMPORTANT INFORMATION: Loan terms of between 1 Year and 40 Years are available subject to lender and credit criteria. Maximum comparison rate will not exceed 14.99% (see comparison rate warning above). Any calculations or estimated savings do not constitute an offer of credit or a credit quote and are only an estimate of what you may be able to achieve based on the accuracy of the information provided. It doesn't take into account any product features or any applicable fees. Our lending criteria and the basis upon which we assess what you can afford may change at any time without notice. Savings shown are based on user inputted data and a loan term of 30 years. All applications for credit are subject to lender credit approval criteria.
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