Are you struggling with debt? Or maybe you have bad credit and are looking for ways to become debt free? If so, you might be considering a debt consolidation loan. This can be a good option for those of us who have bad credit as it combines all your debts into one loan.
If you want to find out more about debt consolidation loans for bad credit in the UK then you’re in the right place. We’ll cover how they work and the benefits of using them. We’ll also tell you what you need to take to apply for a debt consolidation loan.
What are Debt Consolidation Loans?
A debt consolidation loan is a type of loan that allows you to pay off multiple debts in one go. Here’s an example. Let’s say you had three debts:
- An overdraft of £1200
- An outstanding credit card balance of £4,300
- An outstanding balance on a store card of £500
Your total debt would be £6,000. Instead of paying all these debts, you could take out a consolidation loan for £6,000 and pay them all off. This way, you’d only have one payment to make each month instead of three.
You can apply for a debt consolidation loan from banks, credit unions and direct lenders.
Can I Get a Debt Consolidation Loan with Bad Credit?
Yes, you can get a debt consolidation loan with bad credit. But just be aware that it’ll probably come with a high interest rate.
Before you apply for a debt consolidation loan, check your credit score and history to see where you stand. If your credit score isn’t looking very healthy, see if you can improve it. If you need to apply while your credit rating’s poor, look for lenders that specialise in helping people with bad credit.
Is a Debt Consolidation Loan a Good Idea When I Have Bad Credit?
A consolidation loan when you have bad credit can be a good idea, but it depends on your situation.
If you can get a low interest rate and you’re confident you can make the monthly payments, it’s a good thing. It’ll help you get out of debt. But if you’re not sure you can make the payments or if the interest rate is too high, it might not be worth it.
If you’re not sure if a consolidation loan is right for you, seek advice. There are organisations who can help like Stepchange or National Debtline. These are charities who you can talk to for free.
What Can I Use a Debt Consolidation for Bad Credit for?
A debt consolidation loan for bad credit can be used to pay off different types of debt. Here are the most common ones:
- Credit cards
- Short term personal loans
- Store cards
- Tax arrears
- Overdrafts
- Payday loans
- Unpaid utility bills
If you have a few different debts and you’re struggling to manage them all, a consolidation loan could be your answer.
What Types of Debt Consolidation Loans for Bad Credit Can I Get?
There are a few different types of debt consolidation loans for bad credit that you can get in the UK. It depends on what you need. Below we list some of the options available to you.
1. Short Term Loans
Short term loans are good for borrowing smaller amounts with shorter repayment terms. The interest will vary from one lender to the next. How much interest you pay is dependent on your situation and credit history.
They’re a good option if you don’t owe much but are paying high interest rates. They can help you by reducing the amount you pay each month when compared to your existing loan. You just need to be sure you’re not paying more interest overall.
2. Secured Loans
A secured loan is one that is backed by collateral, such as your home. This makes it easier to get approved for a loan, even with bad credit. But it also means that you could lose your home if you can’t repay the loan.
The good thing about secured loans is that, as the risk to the lender is lower, you can get a better interest rate.
3. Unsecured Loans
An unsecured loan is not backed by collateral, so it may be more difficult to get approved for one. You may have a high interest rate compared to a secured loan.
Check if you’re eligible for an unsecured loan before you apply for it. You don’t want to make lots of applications as this will hurt your credit score.
4. Instalment Loans
Most consolidation loans are instalment loans. They’re paid back in regular, fixed repayments over a set period of time.
Knowing exactly how much you’re paying each month will make it easier to budget. This’ll help you avoid missing payments on the loan.
5. Personal Loans
A personal loan is an unsecured loan that can be used for any purpose. This makes it a flexible option. But check the interest rate to make sure it’s the right one for you.
What are the Advantages and Disadvantages of Debt Consolidation Loans for Bad Credit?
There are advantages and disadvantages of having a debt consolidation loan for bad credit. The table below lists what they are.
| Advantages of consolidation loans for bad credit | Disadvantages of consolidation loans for bad credit |
| You can pay a lower rate of interest on your debts. | It could end up costing you more depending on the rate of interest you get. |
| You pay one lower monthly payment instead of multiple ones, so it’s easier to manage. | It may take longer to pay off your debts depending on the loan repayment term. |
| It can help improve your credit score by: reducing the number of outstanding debts. increasing the amount of your available credit. | If you keep your credit cards after you’ve cleared them, you could be tempted to spend on them again. This’ll make your debt situation worse, and it’ll affect your credit score. |
| You can get out of debt faster than you would if you were only paying the minimum payments on your credit cards. |
How Can I Find the Best Debt Consolidation Loan for Bad Credit?
Here are a few tips to help you find the best debt consolidation loan for bad credit.
1. Work Out How Much You Need and How Much You Can Pay
Before you start looking for a consolidation loan, you’ll need to decide exactly how much you need to borrow. Add up all your debts so that you don’t borrow more than what you need. Once you know this, you’ll need to work out how much you can afford to repay each month.
Knowing what you need and the payments you can afford will help you choose the right loan with the right lender.
2. Check Your Credit Score
Checking your credit score will give you an idea of how likely it is that you’ll get a consolidation loan. If your credit score is poor, it’s worth doing what you can to boost your credit score before you apply. The UK has three credit reference agencies to check your score with:
- Experian
- Equifax
- TransUnion
If you’ve got a bad credit score it may mean you end up paying higher interest rates. If this is the case, your consolidation loan may not be cheaper than your existing debts.
3. Shop Around
Don’t just settle for the first loan company you come across. Compare interest rates, fees and repayment terms from multiple lenders to find the best deal. And make sure the lender you choose will let you borrow the money you need to clear all of your debts.
If you want to know if you’re eligible to apply for a loan with a lender, have a look at comparison websites.
How Much Does a Bad Credit Debt Consolidation Loan Cost?
The main cost associated with a bad credit consolidation loan is the interest rate. It’ll be higher than what you’d pay on a regular personal loan. The total amount you’ll pay back will be provided to you by the lender. This may vary from one lender to the next as they all have different charges. But it’s important you check this total repayment figure for the following reasons.
- You’ll want to compare your new loan repayment with what you’re already paying. You don’t want it to cost you more than your existing debts.
- Once you know the total cost you can compare it with other lenders.
Although you should avoid missing payments on the consolidation loan, find out what you’ll be charged if you do. And read the terms of any bad credit consolidation loans before signing.
How Can I Apply for a Debt Consolidation Loan for Bad Credit?
If you’ve got bad credit but want to apply for a debt consolidation loan, here are some steps to follow.
- Look for lenders that specialise in loans for people with bad credit.
- Once you’ve found a lender, you’ll need to complete their application. At this point you’ll need to have some information to hand. They’re likely to ask for:
- Proof of identity
- Proof of your address
- Proof of your income
- Details of your income and outgoings
- Your bank account details
- Details of your debts that you want to pay off
- If you’re approved for the loan, the next step is to use it to pay off your debts. Start by clearing the one with the highest interest rate first. Then pay your new loan repayments on time and in full each month.
What are Some of the Best Alternatives to Debt Consolidation Loans?
Debt consolidation loans are often marketed as a way to make your debt more manageable, which they can be. They’re also another form of debt. There’s more than one way to pay off your debts, here are some alternative options you could try.
- The first thing you could try is to transfer your balance to a 0% APR credit card. This will give you an interest free period to pay off your debt.
- If you own a property, you could take out a mortgage on it. If you already have a mortgage, you could either re-mortgage for a higher amount, or take out a second mortgage. Mortgage rates tend to be lower than loan rates. But remember your home is at risk of being repossessed if you can’t make your payments.
- If you’ve got any savings, use some of them to reduce your debts. If the interest you’re paying on your debt is more than the interest on your savings, then it’s worth doing.
- Finally, you could negotiate with your existing creditors. If you’re struggling, they may be willing to work with you which could involve setting up a payment arrangement. Doing this can help reduce the interest rate and get late fees waived. But the downside of this option is that it’ll show up on your credit file, which will harm it.
Whichever option you choose, make sure you do your research and compare all the alternatives available.
How do I Check if I’m Eligible for a Bad Credit Debt Consolidation Loan?
So, you’ve decided you want to consolidate your debts with a bad credit debt consolidation loan. But how do you know if you qualify for one? We’ve listed a few things below that’ll help you find out if you’re eligible for a debt consolidation loan.
| Reasons you’re likely to be eligible for a debt consolidation loan | Reasons you may be ineligible for a debt consolidation loan |
| You’ve got a good credit history with no missed or late payments | You’ve got missed or late payments on your credit file, or defaults registered against you. |
| Your debt repayments are less than 40% of your total income. | Your debt repayments are higher than 40% of your income. |
| You have a regular income. | You don’t have a regular income. |
| You’re a UK resident, over the age of 18. | You don’t have a UK bank account. |
Ultimately, to find out if you’re eligible for a bad credit debt consolidation loan check with the lender. Comparison sites can help with checking which loans you’re eligible to apply for.
FAQ: Debt Consolidation Loans for Bad Credit
Will a Debt Consolidation Loan Affect My Credit Score?
A debt consolidation loan can affect your credit score in the following ways:
1. It’ll help your credit score as the amount of available credit you have will go up. That’s so long as you don’t spend on the credit cards you’ve cleared.
2. If you keep on top of your consolidation loan repayments, it’ll help improve your credit score. But if you miss them or are late making your payments, it’ll hurt your credit score.
Is Consolidating My Debts a Bad Idea if I Have Poor Credit History?
If you have a poor credit history, debt consolidation may not be a good idea for the following reasons.
1. You could end up paying a higher interest rate compared to your existing debts.
2. It can take you longer to pay back what you owe.
3. Moving your debt doesn’t make it go away, you still have to pay back what you owe.
Can I Get a Debt Consolidation Loan for Bad Credit Without a Guarantor?
If you have bad credit, you don’t need a guarantor to get one. There are lenders who’ll consider providing debt consolidation loans to people with bad credit. But if you have got a guarantor then it’ll help secure a loan if your credit rating is poor.
Can I Get a Bad Credit Debt Consolidation Loan Without a Credit Check?
No, all authorised lenders will do a credit check as part of their decision-making process. This is because the Financial Conduct Authority sets out guidelines that lenders must follow.
If a lender says they’ll give you a loan without doing a credit check, then read the small print. All reputable lenders will do a credit check when you apply for a loan.
Disclaimer: Any information provided does not constitute financial advice. Please read carefully about the terms and conditions of the credit provider you choose to take out a loan from. Any links to external websites are for reference only and are correct at time of publishing.
