A Guide to Debt Consolidation Loans for Those With Bad Credit

Guide to consolidation loans

If you have multiple debts which you are struggling to repay, you are not alone. There are many ways to tackle your debt, and one of the most popular options is a debt consolidation loan. A variety of lenders specialise in these types of loans, with many considering lending to those with a bad credit score.

What Exactly Is a Debt Consolidation Loan?

Debt consolidation loans are designed to enable borrowers to condense their debt repayments. This means that rather than juggling repaying several debts every month, you simply need to budget for a single repayment. In many cases, it is possible to take out a debt consolidation loan with the monthly repayment set at an affordable amount for your budget.

This could provide quick relief if you have been struggling to keep up with spiralling debt repayments. However, spreading the repayment period over a longer length of time could mean that you end up paying more in interest, and it could take you longer to become debt-free. As with all loans, the benefits will depend on your individual circumstances, although many borrowers find that debt consolidation loans are a great tool.

Are Debt Consolidation Loans Available to People With a Poor Credit History?

In general, those who have a history of missing repayments are likely to have a bad credit score. However, it is also possible to have a poor credit score simply by not being registered on the electoral roll. Although a poor credit history can make it more difficult to obtain a loan, debt consolidation lenders are willing to consider every application.

If you can show that you have been keeping up with repayments recently and that any missed repayments are historic, you may be approved for a consolidation loan. There are many lenders who are known for their open-minded approach to lending, so if you have been turned down by a traditional bank or building society, there may be other options available.

It may also be possible to reduce the risk to the lender by applying for a secured loan. This will involve you offering an asset as security against the loan. This means that if you default on the loan repayment, the asset may be taken to recoup the cost of any missed payments.

Alternatively, it may be possible to ask a close friend or family member to act as a guarantor. If you have a guarantor for your loan and miss a repayment, your guarantor will be responsible for making the payment on your behalf. If this is a route you would like to pursue, we always advise caution as it can strain relationships if repayments are missed and finances become an issue.

The main factor that lenders will be considering is whether the loan repayments are affordable. If you can show that you have been able to make repayments that are higher than the loan you are applying for, this will improve your chances of being approved. The exact criteria will vary between lenders. However, you will need to be aged over 18, a UK resident, and you will also need to be employed.

Can All My Debts Be Included in a Debt Consolidation Loan?

Yes, if you would prefer to have a single monthly loan payment. You should start by making a list of every debt you have, the amount and the interest charged. This will provide you with a total debt figure, so you will know exactly how much you will need to borrow for your debt consolidation loan.

If you have several credit cards, loans, overdrafts or outstanding payday loans, these could all be paid in full using a debt consolidation loan. For example, if you have multiple credit cards with high-interest rates, a debt consolidation loan could help you repay these whilst also lowering the amount you need to repay each month. In addition, the loan could offer you an extended repayment term, and the interest rates could be lower, so it is always worth comparing the options available.

The most important factor to consider is the affordability of the loan. It should be able to fit within your monthly budget comfortably.

Will a Debt Consolidation Loan Improve My Credit Score?

If you have many debts that you find hard to manage, it is not uncommon for repayments to be missed accidentally. This can damage your credit score, as it will suggest that you cannot manage your finances. However, taking control of the situation with a debt consolidation loan could help you avoid these potential missed payments.

By repaying your initial debts with a consolidation loan, potential lenders will be able to see that you have a financial plan, that you can budget and that you are a reliable borrower. In addition, if you can make the repayments on your consolidation loan on time and your debts are marked as settled, your credit score will likely begin to improve.

Where Can I Borrow a Debt Consolidation Loan?

As a broker, we specialise in helping borrowers find the most suitable loans for their situation from our panel of lenders. We can help you find a loan for up to £5,000, with repayment terms designed to suit your individual circumstances. The maximum loan term our lenders offer is 36 months, so you can create a bespoke repayment arranged to suit your budget.

We work with the UK’s most reputable lenders who are committed to helping borrowers with a wide range of financial circumstances. Our service is completely free, and we can match you to the lenders who are most likely to approve your loan. The whole process can be completed online and takes just a few minutes, with funds transferred to your bank account on the very same day.

If you struggle to keep up with debt repayments, a consolidation loan can be a great tool. However, you should always think carefully about whether you can afford to meet the repayments. There are several organisations which offer free and impartial financial advice, including Citizens Advice, Step Change and Money Helper.