Secured consolidation loan

Amara

I've noticed other thread about consolidation loan. Person I know wants to take secured loan to pay off other debts. Has an offer, but lender doesn't want to just give them money, only cheques payable to debtors ( credit cards companies, banks) . Is it normal? It sound weird to me. It's not about loan being secured on the house, just form of it, not money, just cheques. So, is it a common practise?

Pixie5740

Why does this person want to take what is presumably unsecured debt and turn it into debt secured against the roof over their head. Consolidation is rarely a good idea but to consolidate and risk your home is a doubly bad idea. Consolidation doesn't pay off debt you just owe someone else the money.

It's not unheard of for lenders to want to pay other lenders directly when consolidating. If this person wants a consolidation loan what difference does it make if they give the money to their creditors or the new lender does it?

If this person wants to consolidate because they are struggling to keep up with repayments I urge them to contact one of the debt charities (CAP UK, National Debtline or Step Change) before making any hasty decisions.

Amara

Thanks Pixie. I just find this idea weird. Fair enough , they want to consolidate, but still.

enthusiasticsaver

I would agree it is not a good idea to consolidate unsecured debts into a secured loan. Maybe the new lender wants to make sure the money will be used for purpose stated.

jonesMUFCforever

I think this is a vey good idea - if the idea is to consolidate why not have cheques payable to creditors?
Safer for the lender in case the debtors were not paid.

Thrugelmir

Amara wrote: »

I just find this idea weird.

The alternative is that the borrower has a lot of money in their account. That they can go and spend. I'd find it weird that a consolidation lender would want to risk this.

DCFC79

I see the logic in it, it prevents your friend from spending the money on something else which in turn creates more debt. Just might be paying more for the privilege.

AnotherJoe

Amara wrote: »

Thanks Pixie. I just find this idea weird. Fair enough , they want to consolidate, but still.

I find it prudent rather than weird. If the lender doesn't do this, there will be for sure be some customers that simply go and splurge the new money rather than spend it on consolidation .

dealer_wins

Wow cheques still exist!

Thrugelmir

dealer_wins wrote: »

Wow cheques still exist!

Money remains in the lenders account while earning them interest.

Amara

Thanks for replies. So, nothing dodgy in it? I admit I thought for a second