Bad Credit Consolidation Loan – Complete Analysis with Advice, Guide, FAQs & More

bad credit consolidation loan

Looking to get a debt consolidation loan with bad credit?

If so, you may be concerned about your chances of getting a consolidation loan with a bad credit rating and a poor borrowing history.

I’ve written this guide to help you learn more about your situation and the options available to you.

Let’s get right into it.

How Does Credit Matter When Getting a Consolidation Loan?

Yes. 

Your credit rating definitely matters when it comes to getting a debt consolidation loan.

To put it simply, a good credit rating ensures that you’ll get consolidated debt loans at better interest rates and with less financial restrictions.

On the contrary, a poor credit rating pretty much ensures that you’ll have difficulty finding a consolidation loan at all, not to mention the conditions and interest rate associated with one when a creditor finally agrees to loan you.

Also, a good credit rating means that you’re seen as a reliable borrower, so more lenders will be willing to give you unsecured loans, which is a huge bonus because you won’t have to put up an asset of yours as collateral towards the debt.

On the other hand, a poor credit score will make it considerably harder for you to get an unsecured debt consolidation loan. 

Lenders will see you as untrustworthy and unreliable and you’ll mostly be offered secured loans. To make matters worse, you’ll be asked to pay your creditors back at a much higher interest rate than if you borrowed a loan with good credit.

As you can clearly observe, credit is central when it comes to getting a debt consolidation loan.

What is the Eligibility Criteria for Consolidation Loans?

You may be wondering what the eligibility criteria is for debt consolidation loans and whether you’re eligible to get one.

I’ve written the conditions you need to meet to be eligible for a consolidation loan below.

  • You don’t have a history of County Court Judgements or bankruptcy
  • You don’t anticipate any potential changes to your income that could severely impact your ability to obtain credit in the future and pay your loan back
  • You have a regular income of more than £12,000 a year
  • You’re older than 21 and not older than 70 at the time when the loan expires
  • You have a good credit rating 
  • You can ensure that you are able to meet the repayments on time since missed payments will have harmful consequences for your image as a borrower
  • You have a bank based in the UK or a building society account that can pay direct debits
  • You have been a resident of the UK for at least three years.

If you meet all these requirements, you’ll be eligible to get a consolidation loan. 

If you’re confused about your eligibility, you can seek debt advice from an independent debt charity such as StepChange.

Is it a Good Idea to Consolidate Debts?

It depends on the situation.

If you’re someone who has a good credit rating and you’re confident you can borrow a big amount of money at a low interest rate, it’s a good idea to consolidate your debts.

Also, if you can get unsecured debt consolidation loans to pay off your existing debts, that’s a positive sign. Unsecured loans are pretty good for most people because they don’t have to put up prized assets of theirs against what they’re borrowing.

In general, if you think you can meet the required monthly payments on your consolidation loan, if you’ve borrowed it at a low interest rate, and if it doesn’t affect your credit rating negatively, I recommend that you go for it.

However, there are a few situations where getting a debt consolidation loan is a bad idea. I’ll cover some of those situations in the next section.

When Not to Consolidate Debts

There are three common situations where it’s generally a bad idea to consolidate your debts.

The first is when you have a loan that you know you can pay off in less than a year’s time. If that is indeed the case, you’re better off not borrowing a debt consolidation loan.

The reason behind that claim is pretty simple.

For one, you’ll have to deal with a number of arbitrary charges, such as processing fees. Secondly, you’re better off making regular monthly payments towards your small debt instead of trying to get another loan and risking your credit score.

The second situation where it’s a bad idea to consolidate your debts is when you’re sure that you won’t be able to pay your debts back even with a consolidation loan. If your existing debts have gotten out of hand, you should look into legal options such as IVAs and DROs.

The last commonly observed situation is when you know that you won’t be able to make regular payments on your loan. If you keep missing payments, it will hurt your credit score and ultimately, your reliability as a borrower.

How to Get a Consolidation Loan with Poor Credit Score?

If you’ve gotten yourself into a pinch and your credit score is pretty poor, you need to know what you can do about it and if you can still get a debt consolidation loan.

This section addresses exactly that. Let’s get right into it.

  1. Keep checking your credit report

I’ve said it before and I’ll say it again.

Your credit rating is by far the most pertinent factor when it comes to getting loans and the terms of the loans that you’re offered.

There’s a minimum credit rating that you need to stay above if you want to qualify for a consolidation loan.

You need to constantly stay aware of where you stand and what your credit rating looks like.

The good news is that there are lots of free tools, particularly offered by some banks, that will let you view your credit report. 

  1. Explore multiple fronts

If there’s one piece of advice I can give you, it’s that you shouldn’t limit your options.

A bad credit report can make someone feel like they won’t be able to get any debt consolidation loans and that they don’t have any options available and that you should accept the first offer you come across.

I recommend that you put in the time and effort to look around and find better alternatives.

You should go about comparing and contrasting interest rates, prices, and the terms of the debt.

There are multiple ways to do this. I recommend that you search up your options on the internet.

  1. Secured loans are a good idea

Even though secured loans ask you to put up an asset of yours as collateral, they may be a viable option for you.

If you have bad credit, a secured loan may be the best option for you.

To make matters simpler, secured loans are loans where you put up an asset of yours as collateral against the loan. 

Generally, a secured loan is easy to get and doesn’t rely on your credit rating as much as a debt that isn’t secured.

You’ll probably get secured loans at much lower interest than unsecured loans, even if you don’t really have a good credit rating.

If you have bad credit, you will usually be asked to put up an asset of yours against the loan.

  1. A good credit rating is vital

Having a good rating is central to getting a consolidation loan.

A good credit rating will ensure that you’re offered loans on terms that are convenient and fair for you.

So if you have bad credit, you should be doing a lot to bring your credit rating back up.

The best way to do this is to make regular payments on your loans.

Your credit report is usually the first thing creditors notice when they’re looking into whether they should give you a loan or not.

Alternatives to Debt Consolidation Loans

If you don’t think you should be getting a debt consolidation loan, I’ve mentioned a few alternatives that you may choose to avail of.

  •  A 0% balance transfer card: A 0% balance transfer card is a very good option for people who don’t want to opt for a debt consolidation loan.

The way it works is that you can transfer your credit card debt to these cards with a small transfer fee, and then focus on paying them back, completely interest-free.

  • A 0% money transfer card: A 0% money transfer card can be used to transfer money to your account and then you can proceed to pay it back over time, completely interest-free.

There are some other alternatives if you don’t feel like consolidating your debts. One potential option is to take money from your mortgage payments and use it to pay back other debts. 

Mortgage payments are generally long-term, so using money from that source instead of choosing to consolidate debt is an option some people go for.

FAQs

Do consolidation loans hurt your credit score?

Yes, consolidation loans can hurt your credit score.

However, this is not a certainty,

If you borrow responsibly and keep making regular payments, your credit rating will eventually start to improve.

A consolidation loan will hurt your credit rating if you fail to make regular repayments, if you borrow irresponsibly, or if you borrow way too many unsecured loans under financial duress. If you keep delaying payments, you may also be confronted by debt collection agencies.

How long will a consolidation loan stay on my credit report?

A consolidation loan stays on your credit report for a period of six years after it is either paid off or defaulted on.

How can I get a large consolidation loan?

You can get a large consolidation loan by being seen as a responsible and reliable borrower.


The best way to do that is by having a good credit score, making payments on time, and being a trustworthy debtor.

If you have a good credit score and a trustworthy financial history, you’ll be able to ask creditors for larger sums of money at low interest rates.

How much debt can I consolidate?

In the UK, lenders will offer you amounts ranging anywhere from £500 to £35,000 for a consolidation debt.

However, depending on your credit rating, borrowing history, and a few other metrics, you may be able to borrow up to £50,000.

Conclusion

Bad credit may be difficult to work around, but you shouldn’t throw in the towel.

Learning how to get debt consolidation loans even with bad credit will go a long way in helping you cope with your financial situation.

I hope this guide helped you in more ways than one. If you need any debt advice, feel free to reach out.


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