Consolidation loans: A Guide for 2023Get all debt consolidation loan key information in one place. Answers to questions about loans.
In this article, we'll cover:
- What is a consolidation loan?
- How do consolidation loans work?
- What debts does a debt consolidation loan include?
- What is an unsecured loan?
- Am I eligible for a debt consolidation loan?
- Is it a good idea to consolidate debt?
- Can a debt consolidation loan save money?
- What are the disadvantages of a consolidation loan?
- Do debt consolidation loans hurt your credit score?
- Can I get a debt consolidation loan with bad credit?
- Can you get an online debt consolidation loan?
- How much does a debt consolidation loan cost?
- To summarise
If you’re struggling to pay back existing debts such as personal loans or credit card debts, you might have considered a debt consolidation loan.
It can be a good option if you’re dealing with several unsecured loan, but is it the right option for you?
What is a consolidation loan?
In short, a consolidation loan is a way to combine all your existing debts into a single monthly payment. It is used to pay back your current creditors so you’re just dealing with one loan. What’s the difference between a consolidation loan and repaying your existing loans as they are?
- You won't have several creditors chasing you each month
- Easier to keep on top of payments because it's just one loan to repay
- You won't be charged multiple interest rates and fees
Consolidation loans aren’t for everyone, especially if you’re happily meeting your current loan repayments.
How do consolidation loans work?
Debt consolidation loans work by enabling you to borrow enough money to pay back all your existing debts in full. Then you make just one monthly repayment instead.
Having a single loan to repay rather than several could help you to pay back your debts quicker.
There are two different types of debt consolidation loan:
- An unsecured debt consolidation loan
- A secured debt consolidation loan
So, what's the difference?
Unsecured debt consolidation loans are not fixed by an asset such as your home. This means you won’t risk losing your home but the interest rate on this type of loan could be higher.
Secured debt consolidation loans are fixed by an asset. Doing this means you’re more likely to be accepted, and interest rates could be lower. However, you risk losing your home.
To know more about the difference between unsecured and secured loans, see the “What is an unsecured loan?” section of this article.
What debts does a debt consolidation loan include?
Consolidation loans cover unsecured loans such as:
- Credit card debt
- Payday loans
- Store card or catalogue debts
- Balance transfer cards
A personal loan can be a good idea. Loans can help you to pay for holidays, weddings, household items and even just bridge the gap until your next payday. They even help to improve your credit rating! But if you get to the point where you can no longer afford your loan repayment, things could become financially difficult.
What is an unsecured loan?
An unsecured loan is a loan that is not secured by an asset like a mortgage. You’re not putting anything down as collateral so you’re less likely to risk losing assets or possessions. This can be a good option if you don’t have any assets it can be harder to get an unsecured loan and often, they have higher interest rates. So, make sure you check their rates.
It’s also worth noting that a loan provider may ask for a guarantor when applying for this kind of loan.
A secured loan is a loan that is secured by an asset like a mortgage. Secured loans can help you to purchase bigger items that most people wouldn’t be able to afford in a one-off payment. You’re also more likely to be accepted with a bad credit rating.
Am I eligible for a debt consolidation loan?
Your eligibility for a debt consolidation loan will depend on how much debt you have, among other variables.
If you’re a UK resident and have:
- Unsecured debts of £5,000 - £75,000
- The means to pay back a fixed amount every month
You could be eligible for a loan with us. The loan amount you can get will depend on how much you owe.
Is it a good idea to consolidate debt?
Whether or not it’s a good idea to consolidate debt depends on your personal circumstances. But it can be beneficial if you’re currently struggling to meet your monthly repayments.
A debt consolidation loan lets you combine debts into a reduced monthly payment. If this sounds like something that could benefit you, then it might be a good idea.
Can a debt consolidation loan save money?
If you’re being charged a high interest rate or any late fees, especially if you’re missing monthly payments because you can’t afford them, a debt consolidation loan could save you money. This is because what you owe won’t keep increasing at the rate it might if you’re paying back several personal loans.
The problem with many short term loans like payday loans is that they’ll charge the maximum APR. This means if you owe money to a short term loan company, the amount you pay back will probably be a lot more than what you borrowed in the first place.
- The interest rate on a loan can make the difference between being able to afford your repayments and not, so always read the small print such as the representative APR carefully when applying for a loan.
- Compare loans when choosing a personal loan or credit card, don't just pick the first one you see! Loan rates are always different across companies so see what their late fees and charges are.
- If the loan provider offers a promotional 0% or low interest rate, check the loan term for how long that lasts. You may also lose this promotion if you don't pay back the minimum amount per month, or you're late with payments.
- Check interest rates
- Check loan rates
- Check promotions
What are the disadvantages of a consolidation loan?
A consolidation loan isn’t for everyone, and it might not be suitable for you if:
- You owe less than £5,000 in debts
- You only have secured loans
- You're not a UK resident
- You're already comfortably paying back all your debts
Aside from eligibility,
Do debt consolidation loans hurt your credit score?
Debt consolidation loans will affect your credit score, in the short, medium, and long term. We all want a good credit rating but any existing loans that you’re failing to repay will already be lowering your credit score. So, it’s best to find a way to start paying outstanding debts.
Debt consolidation loans are a good first step to improving your credit rating. Although it will hurt your credit score initially, the long term goal is to prove you can repay existing debts and increase your credit rating. It shows loan providers you are serious about paying back your debts and if you meet your fixed monthly payments then it should improve your credit score.
If you want to take out a new loan in the future, lenders will check your credit history and will see you’ve tried to improve your financial circumstances by taking out a loan to repay your debts.
You will always require a credit check no matter what type of loan you’re applying for. This can sound intimidating especially if you’re already worried about bad credit but it’s essential to the process and any damage a hard check causes to your credit score is temporary. You can improve your credit rating with time and by repaying debts in full and on time.
Can I get a debt consolidation loan with bad credit?
You can get a debt consolidation loan with bad credit. Consolidation loans were invented to enable people to repay multiple existing debts that they are currently struggling to afford. This means debt solution companies, like us, are open and understanding when it comes to bad credit.
They know you may have a bad credit rating because you’re missing your current monthly repayments, but they are here to help with that by combining all your debt and allowing you to pay one reduced monthly repayment instead.
We consider all applicants no matter what their credit rating is. If you’re keen to improve your financial situation and pay back your existing debt, then we could help.
Can you get an online debt consolidation loan?
You can get online debt consolidation loans simply by applying with us through our online application.
Our online application is made up of a few questions that will help us to qualify you for a loan with one of our lenders. If successful you could consolidate multiple debts into one simple monthly repayment.
All questions asked on our application are there to ensure you are getting the right tailored service to your personal circumstances.
How much does a debt consolidation loan cost?
How much a debt consolidation loan costs depends on the loan amount and how long it will take you to pay it back.
Like with any other type of loan, it’s important to check the interest rates or annual percentage rate (APR), and any other arrangement fees.
Some providers might issue you with a settlement fee if you pay off the loan early.
Always compare debt consolidation loans when choosing the right debt solution for you. We advise doing some research online or speaking to a financial advisor.
A debt consolidation loan is a way to consolidate multiple existing debts into just one monthly repayment.
If you’re struggling to repay several unsecured loans, it could be the right choice for you.
If you’re dealing with financial difficulty due to several unsecured debts, we could help you find the right solution. We are regulated by the financial conduct authority which means we are always honest and straightforward with our debt advice.
To find out more about debt consolidation loans and bad credit loans available from Consolidation Express, fill in our quick online application today.Apply Now
APRs from 5.8% to 89.9%
We are a broker, not a lender.
Unsecured Loan Representative 69.9% APR
Borrowing £7,500 over 36 months, repaying £502 per month, total repayable £18,083. Total cost of credit £10,583. Interest rate 69.9% (variable). The lenders on our panel offer loans for 12-60 months, with rates from 5.8% APR to 89.9% APR. The Representative Example is based on all loans paid out by lenders between 19th Apr 2022 and 23rd Dec 2022.
Secured Representative 11.7% APR
If you choose to add fees to the loan: Assumed borrowing of £25,000 over 120 months, plus a broker fee of £2,500 and a lender fee of £250 would result in monthly repayments of £345.55, the borrowing rate is 8.6% (variable), the APRC is 11.7% (variable), total charge for credit £16,466.00 and the total amount payable £41,466.00. You can opt to pay the lender and/or broker fees upfront, your adviser will discuss these options with you.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any debt secured on it. All rates vary subject to loan amount, loan type and status. Repaying your debt over a longer period of time may increase the amount you pay.