What Are the Best Consolidation Loans in the UK?

Are you wondering what are the best consolidation loans in the UK? You’ve come to the right place for answers. Each month, over 170,000 people visit this site to understand different ways to deal with money worries.

In this article, we’ll explore:

• What a debt consolidation loan is.
• Different types of debt consolidation loans.
• How to choose the best loan for you.
• The pros and cons of debt consolidation.
• Other ways to handle debt.

According to the ONS, one in five homeowners with a mortgage has borrowed money specifically for debt consolidation.¹ So understanding the different types of debt consolidation loans is crucial.

We’re here to help you understand your options. Let’s dive in!

Types of Loans

There are two types of debt consolidation loans: secured and unsecured debt consolidation loans.

Secured debt consolidation loans can be risky as the amount you’ve borrowed is secured against an asset. If you don’t pay back on time, you risk losing these assets.

On the other hand, unsecured debt consolidation loans are generally less risky as they aren’t secured against your assets.

Pros & Cons

An excellent financial strategy for finding the best debt consolidation loan for your needs is to weigh up the pros and cons.

The Best Loans for Consolidating in the UK

There is no ‘best consolidation loan’ for everyone.

However, it is possible to find the best consolidation loan for your personal situation. Read on for more information.

For Eligibility 

Before you even get to the credit check part of the process, some factors can prevent you from applying for a debt consolidation loan with the big UK banks. 

At the time of writing, only Santander requires applicants to be at least 21 years old.

All of the other banks mentioned above only need applicants to be 18 years old. However, this isn’t the biggest problem.

A requirement for Nationwide, NatWest, Barclays, Lloyds and RBS is that you should already have a bank account with them before applying for a debt consolidation loan. If you are not already a customer, you may not be able to get a loan.

In many cases, they need you to have opened this account one to three months in advance. This means you can’t just open an account and then apply for a personal loan.

However, some banks allow applications from non-customers. These include Santander, Halifax and HSBC. 

Winners: Santander, HSBC and Halifax

Losers: Nationwide, NatWest, Barclays, Lloyds and RBS

For APR Rates

The APR rates advertised on bank websites should be taken with a pinch of salt.

Most of the time, they highlight the best-case scenarios when in actual fact few people can get loans with such low APR rates. 

Nevertheless, looking at this rate and the maximum APR rate they will charge gives a decent indication of how much interest you might need to pay.

The lowest representative APR rates are found at Nationwide, Santander, HSBC and Halifax – 2.9%, 3%, 3.3% and 3.45%, respectively. These are the rates usually for loan amounts betwefinding

All other banks listed earlier have a representative ra is possiblete of 3.9%, except for Lloyds. Their best offering was a harsher 5.5%.

Most of these banks’ maximum APR rate is 29.9%, although Santander and Nationwide cap their APR at 24.9%. And the best of them all is found at HSBC. The most interest you pay with their loan is 21.9%!

Winners: Santander, HSBC, Nationwide

Losers: Most of the rest 

Factors Affecting the Loan APR

There are several factors that could affect your loan APR.

These include your credit score, repayment history, debt-to-income ratio, interest rate type, and the loan amount and term.

From my experience, lenders make interest calculations using these factors.

For Repayment Holidays

Repayment holidays may be possible under challenging circumstances with any bank, but these are usually judged on a case-by-case basis. 

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However, some UK banks promote repayment holidays as part of their loans.

You will need to be accepted for the repayment holiday but if you are, they can help you manage your loan repayment from the start. 

The UK banks promoting potential repayment holidays are RBS and NatWest.

Both banks state that some customers can start the first three months of their loan without paying anything. 

The real winner here is Lloyds.

People who have a loan with Lloyds may be able to access two repayment holidays every year that they have a loan. This is a fantastic safety net and a great way to help people manage their repayments in line with the unforeseen events of real life. 

Winners: Lloyds, RBS and NatWest

Losers: All the rest!

For Early Settlement 

Early settlement is when you pay off your loan early.

Most banks offer the benefits of early repayment, but you must pay additional fees to clear the loan before it is due.

For example, to clear a Lloyds personal loan, you must pay as many as 58 days of interest. Barclays is slightly better as you only have to pay a maximum of 30 days of interest. 

However, there is one bank that excels the rest in this department. HSBC claims you can clear a personal loan with them for free anytime. 

Winner: HSBC

Losers: The rest!

Who Offers Them in the UK?

There are lots of banks and building societies that offer debt consolidation loans in the UK. Most of the time, they are advertised as personal loans.

However, as they can be used for debt consolidation, they often take on the name of debt consolidation loans. 

Here are eight of the UK’s biggest banks that offer this type of loan:

• Santander
• HSBC
• NatWest
• Halifax
• Barclays
• Lloyds
• Royal Bank of Scotland
• Nationwide

Our Overall Top Pick!

Our overall top pick for the best debt consolidation loan UK residents can find right now is HSBC.

They don’t require you to be a customer, offer free loan settlement and have a much lower maximum APR rate. Lloyds is also worth considering because of those repayment holidays each year. 

Debt consolidations loans for all purposes

• Stuck paying high interest on credit card debts & loans?
• Looking for a better interest rate?
• Stuck with the confusion of multiple repayment plans?

Polly

“This was by far possibly one of the nicest experiences I’ve had getting a secured loan.”

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Additional Considerations Before Applying

You should consider a few other factors before applying.

These factors include your current financial situation, whether or not the consolidation will actually lead to savings, and how much the hidden fees and penalities could cost.

Making an interest rates comparison and doing your research on lender credibility is also advisable before settling on a debt consolidation loan.

Alternative Debt Solutions in the UK

Debt consolidation loans are not the only way to manage your finances. There are many other debt solutions offered in the UK.

These include Individual Voluntary Arrangements (IVAs), Debt Management Plans (DMPs), and bankruptcy.

You can receive free debt advice services from top UK charities. These include StepChange and the National Debtline.

Does it hurt your credit score?

A debt consolidation loan could hurt your credit score initially. However, if you make payments in a timely manner, your credit score can improve in the long run.

Can you get a loan for different types of debt?

Yes, absolutely! You can consolidate different types of debts such as credit card debts, payday debts, overdrafts, and even debt built up on store cards. These debts can be combined into one single debt.

When is it not a good idea?

Debt consolidation would be a bad idea if you have a poor credit history. In this case, lenders may consider you a high risk, and you may not receive a favourable rate. As I see it, if the interest rate is higher than what you are currently paying, it is a good idea to look for alternatives.

References

1. Financial Reporter – Empathic approach needed for equity release valuations