Lending platform RateSetter explains that a debt consolidation loan might be a good or suitable way to make managing your funds easier by “rolling your existing borrowing into one simple monthly payment.”
RateSetter, which was once a leading P2P lender that has now sold its loan portfolio to Metro Bank (with the bank now funding all-new consumer lending following the RateSetter September 2020 acquisition), explains:
“Ideally, a debt consolidation loan gives you a lower rate of interest resulting in lower monthly repayments or allowing you to pay off your debt sooner.”
While examining how a debt consolidation loan might also help with enhancing your credit rating, RateSetter’s blog post adds:
“Over time and depending on a number of factors, yes it can. To achieve this, it is important that you remain disciplined about all aspects of your finances, in particular making all your loan repayments on time and in full and ensuring you are not increasing your overall debt or using all of your available credit. You will need to consider the size and type of your original debt or whether there are any hidden or extra fees to clear your existing debts.”
According to RateSetter, one of the main factors in determining your credit score is your history of consistently paying back loans and other forms of credit. The lending platform’s blog post adds that “paying back a debt consolidation loan on time will build a history of regular monthly repayments, which may help to improve your credit score over time.”
RateSetter further noted that missed or skipped payments could negatively impact your credit score. The company adds that a debt consolidation loan “simplifies your existing borrowing into a single monthly payment, which can be lower than the combined total of your individual loans before consolidation.”
RateSetter further explains that having fewer repayments to track and worry about, and a significantly lower monthly payment figure, “means you should be less likely to miss a repayment.” This approach could play a key part in building and improving your credit score, RateSetter’s blog post claims.
As explained by the lending platform, ‘credit utilization’ is “a calculation of how much credit you are using out of the revolving credit you have available to you.” The company further notes that ‘revolving credit’ is “a form of borrowing where the amount borrowed, the repayments and duration are not fixed, such as overdrafts and credit cards.” For instance, if you have a credit limit of around £1,000 on your credit card, however, there’s also a balance of £200 on the card, then your actual credit utilization is 20%, RateSetter explained.
The lending platform added:
“Credit utilization is another factor that helps determine your credit score. Keeping a low level of credit utilization across your borrowing could help improve your credit rating. Paying off credit card and/or overdraft debt with a debt consolidation loan reduces your credit utilization and therefore could help improve your credit score.”
According to RateSetter, a “good mixture of ‘revolving credit’ and ‘instalment credit’ (like a personal loan) is usually recommended to maintain a good credit score.” This mixture is called a “credit mix.”
RateSetter’s blog further noted that when we consolidate debt using a loan, you may initially see a decline in your credit score since you’re opening up a new line of credit. The company claims that this may be temporary “if all other things remain equal.”
RateSetter points out that you should see your credit score “gradually improve over time as a result of consolidating your debt – this is because you are making a regular and structured repayment each month.”
RateSetter reminds us that you’ll have to ensure that you’re “keeping on top of the other things that influence your credit rating e.g. making repayments in full and on time.” As noted by RateSetter, “maintaining a good ‘credit mix’ typically helps when building your credit score.”
“When applying for a debt consolidation loan check your eligibility before applying. Some lenders, including RateSetter, conduct a soft credit check when you apply for a loan quote, which is a type of credit check that does not show up on your credit file, and so does not impact your credit score.”
The company notes that if you’ve got various credit cards / personal loans, then you could “consolidate your existing borrowing” with a RateSetter loan.
If you’re new to RateSetter, then the company explains that a RateSetter personal loan may be used to “streamline your existing borrowing into one affordable monthly payment” and it may also “save you money every month in interest.”
If you already have a RateSetter loan, then you could qualify or be eligible to “consolidate your existing borrowing with your current RateSetter loan or take out a new loan,” the company confirms.
(Note: for more information on these offers check here.)
As covered in October 2020, RateSetter was really struggling to process withdrawal requests from investors.
An investor had reportedly been attempting to get her funds out of one of the UK’s largest peer to peer (P2P) lending platforms, RateSetter, since August 2020. According to a report from the Guardian, the investor (Michelle Johnson) was told by RateSetter’s management that her request was 19,050th in the queue for unprocessed withdrawals.
RateSetter was acquired by Metro Bank. On September 14, 2020, the deal was approved by regulators. Going forward, RateSetter is migrating away from P2P lending as Metro Bank intends on funding loans from deposits while leveraging RateSetter’s technology.