Compare Bad Credit Debt Consolidation Loans

How do bad credit debt consolidation loans work?

Bad credit debt consolidation loans allow you to merge multiple debts into a single loan repayment. You need to apply for a loan and, if accepted, you can use the money to clear your debts.

For example, you may have a balance of £1,500 on a credit card, £500 on your overdraft, and £1,500 left to repay on a personal loan. These are likely to have different repayment dates and different interest rates, which can make them hard to manage.

In this situation, you might take out a debt consolidation loan of £3,500 to pay off these debts in full. You would then repay the new loan in monthly instalments, until it is paid off in full.

How to get a debt consolidation loan with bad credit

To start, you need to know how much you need to borrow to pay off your existing debts. Work out how much you owe and, if applicable, ask lenders for a settlement figure, which is the sum you need to pay to clear your debt, including any early repayment charges.

Once you know this, you are ready to apply for a debt consolidation loan.

You can often check your eligibility for a loan before applying. Many lenders will allow you to see if you qualify for a loan without affecting your credit score, which can reduce your chances of having your loan application rejected.

When you apply for a loan, lenders will typically ask what you plan to use the loan for. This is where you say that you want the loan for debt consolidation.

If approved, some loans could be transferred within a few hours, while others may take several working days, while others may take longer.

Where can I get a debt consolidation loan?

There are several places that you can get a debt consolidation loan, including:

• Online lender: There are many online lenders that offer debt consolidation loans. You can apply directly on their websites, and may get a decision within minutes.
• Bank: Many high street banks offer debt consolidation loans to help borrowers manage their debt. Similarly to online lenders, you can often apply for a debt consolidation loan through their website; some will also operate over the phone or in-branch.
• Credit union: You may be able to get a debt consolidation through your local credit union. Some offer debt consolidation loans for members and allow you to apply online through their websites.

How much does a debt consolidation loan cost?

The cost of a debt consolidation loan will depend on several factors, including your credit score. If you have a bad credit score, a debt consolidation loan is likely to have higher interest rates and be more expensive than if you had a better credit history.

The repayment term on your loan will also affect its cost. A longer repayment term may reduce your monthly payments, but will likely cost you more in interest overall. Loans with shorter repayment terms are usually cheaper, as you pay interest over a shorter period.

Secured loans may have lower interest rates than unsecured loans, but they come with added risk to the borrower.

How much can I borrow?

How much you can borrow for a debt consolidation depends on the lender, the loan term and your financial circumstances. Typically, unsecured debt consolidation loans range from £1,000 to £25,000 but this may vary. If you have a poor credit score, you may not be able to borrow as large a sum as someone with a better score.

You may be able to borrow more if you take out a secured debt consolidation loan, but should consider the extra risk these loans carry.

When will I need to make repayments?

Typically, the first debt consolidation loan repayment will be one calendar month from the date the loan is released. This may vary between lenders, however, so it’s important to check the terms of your agreement to ensure you make your payments on time.

Are debt consolidation loans a good idea if I have bad credit?

Debt consolidation loans could help you to get your finances on track if you have bad credit. A debt consolidation loan merges your debts into one single repayment, which could be easier to manage.

If you keep up with your loan repayments you’ll be able to reduce your debt, and you may improve your credit score too (as long as you manage your other credit responsibilities effectively and don’t continue to take out further credit).

However, make sure you consider whether it makes financial sense to consolidate your debts. If you have bad credit, you may face higher interest rates, which means you could end up repaying more in total if you take out a new loan for debt consolidation.

Also, if you are struggling with your existing repayments, debt consolidation is unlikely to be a good idea. If you can’t afford to pay off your debts, a debt consolidation loan could make the situation worse in the long run. It may be better to ask for independent advice from a debt charity to see what options are available to you.

Will a debt consolidation loan affect my credit score?

As with all forms of credit, applying for a debt consolidation loan usually requires a hard credit check, which could temporarily affect your credit score. However, as long as you make your repayments on time and stay on top of your finances, your score should start to improve.

If you don’t keep up with your loan repayments, this could be recorded on your credit history and your score may drop as a result.

What credit score do I need for a debt consolidation loan?

There isn’t a universal credit score that you need for a debt consolidation loan. Generally , a higher credit score will give you access to cheaper rates while a low credit score is likely to limit your options.

Do I have to pay off all my debts with the loan?

You do not have to pay off all your debts with a debt consolidation loan. For example, if you have a loan or credit card with a competitive interest rate, you may prefer to keep this agreement and use the loan to pay off your other, more expensive debts.

Other important considerations

There are several important questions to consider before applying for a debt consolidation loan:

• How much do I owe? Add up your debts and ask lenders for a settlement figure so that you know exactly how much you need to pay to clear your debts
• How much can I afford? Create a budget so that you know how much you can afford to repay each month.
• What interest rate could I get? Compare deals to see what interest rates are available. If you have bad credit, you are likely to face higher interest rates.
• What is the repayment term? Consider the length of the repayment term as this affects the cost of the loan overall. A longer term could result in smaller monthly payments, but, as you take longer to pay off the loan, you could pay more interest overall.
• How much money could I save? Weigh up the cost of any early repayment charges you need to pay to clear your existing debts and the amount a new debt consolidation loan would cost you in interest and any fees.
• How likely am I to get approved? Having a higher credit score may improve your chances of being approved and getting lower rates of interest. You can check your eligibility for a loan to see your chances of approval.

How to apply for a debt consolidation loan

You can apply for a debt consolidation loan online.

When you apply, you will need to provide the lender with a range of information, including your name and address, your income, your employment status, the amount you want to borrow and how long you want to borrow it for.

The lender will then review your application and run a credit check to see if you could afford to repay the loan. This is a hard credit check and will be recorded on your credit report.

Requirements

To qualify for a loan, you typically need to:

• be over the age of 18
• live in the UK
• have a bank account with a direct debit facility
• earn a certain level of income

While some lenders will only offer loans to those with a good credit score, other lenders will accept applications from people with a poor credit history.

Can I apply without a credit check?

Lenders need to perform a hard credit search when you apply for a debt consolidation loan, as this helps them determine whether you can afford to repay the loan in full.

Why can't I consolidate my debt?

There are three main reasons why you might not be able to get a loan to consolidate your debt:

1. Affordability: Your income doesn’t meet the eligibility criteria to get a debt consolidation loan.
2. Too much debt: The debt you have is too high and consolidating it into a loan may put you into more financial difficulty.
3. Low credit score: Lenders are less likely to approve a debt consolidation loan if you have a poor credit history because there is a greater risk that you won’t be able to repay the debt.