In the UK, it is possible to get a debt consolidation loan to help better manage debt. What’s more, even those who have a bad or very bad credit score in the UK can access debt consolidation loans. However, the options available may be more limited with certain lenders.
This guide explores in more detail about what debt consolidation loans are, how they work, and how you can get one if you have a bad credit score in the UK.
What Is a Debt Consolidation Loan?
So, first things first, what exactly is a debt consolidation loan and how does it work? A debt consolidation loan is a loan, often secured against the borrower’s property, which enables people to combine all existing debt into one single monthly repayment.
Hence, the idea of a debt consolidation loan is to make debt easier to manage, so that all payments are done monthly in one single payment. By doing this, it allows borrowers to potentially save money on the cost of monthly repayments by paying lower interest rates.
What Are the Benefits to a Debt Consolidation Loan?
There are many advantages to a debt consolidation loan.
From helping make debt more manageable, to helping you save costs in interest rates, there are many reasons why a debt consolidation loan might be a viable solution for you. Below, find some of the many advantages to debt consolidation loans in the UK:
1. Financial Control
Taking out a debt consolidation loan could be a good idea for those who need help with their long term budgeting. It may be that you had a large mortgage on a property and that, along with other expenses meant you fell into debt.
By taking out one loan to consolidate all existing debt, you can manage your finances better and stay in control. Rather than manage multiple loans or lines of credit, you will have just one fixed monthly repayment making it easier to budget in the long run.
2. Save Money Long-Term
Another reason you might wish to take out a debt consolidation loan is to save money. Often, debt consolidation loans can offer a lower interest rate than other forms of loans or credit. This means that by shifting all your debt to one low-interest loan, you could save a lot of money for the remainder of your loan term.
3. Rebuild Your Credit Score
If you have a less than perfect credit score, a debt consolidation loan may help rebuild your credit rating. The payments are more manageable, and therefore, can help you rebuild your credit score as the loan is repaid. Similarly, by rebuilding your credit score, you’ll also increase your chances of securing a loan in the future.
Can I Get a Debt Consolidation Loan with Bad Credit?
It is possible to qualify for a debt consolidation loan even if you have bad credit. In fact, a debt consolidation loan may be one of the best loans for bad credit in the UK.
However, that being said, your choices may be slightly more limited. For example, lenders will scrutinise your financial position as part of their underwriting processes and procedures and this means that the chances of approval are a little lower.
But, that’s not to say there aren’t lenders, or companies who are willing to work with you and find you affordable and competitive interest rates.
Is It a Good Idea to Get a Debt Consolidation Loan?
Debt consolidation loans could be a good move for those with bad credit as it could be the first step towards clearing their overall debt and managing their finances better.
For example, if you have £1,000 outstanding on a credit card, £1,000 on a store card and £3,000 on a loan, a debt consolidation loan for £5,000 would clear this debt and manage your payments into just one monthly debt repayment. When doing this, you have better control because you are able to see exactly what you owe. That means there is less chance of missing a repayment and damaging your credit score.
Furthermore, lower interest rates may be offered in comparison to other existing loans. Hence, monthly repayments may be lower for some borrowers. While for others, a debt consolidation loan may mean debt is paid over a longer period of time (meaning they may repay some more) yet means debt is more manageable.
However, it is important to keep in mind and check the terms of your current loans before applying for a debt consolidation loan. Some loans have early repayment fees, meaning borrowers will be charged for moving debt into a debt consolidation loan.
Where Can I Get One?
Working with a loan comparison site can help you compare different lenders and deals from across the market.
You can find out which lenders are best suited to your needs. Not only that, loan comparison sites can typically show you your chances of being accepted for different lenders – this can prevent you from unsuccessful applications and from further damage to your credit score.
If you do have a bad credit score, or perhaps are particularly struggling with managing debt, then it is always advised to speak to a financial advisor before applying for a loan. However, a debt consolidation loan may be a viable solution to help you repay your debts.
In particular, second mortgages which act as secured loans may increase your chances of getting one. These allow borrowers, even with bad credit, to secure an asset (like a property) against the loan to borrow the money.