We’re here to discuss the best debt consolidation loans in the UK right now. We’ll provide a short crash course on everything to do with debt consolidation loans before revealing some of your options. If you want to combine your debts into single monthly repayments, you’re reading the right guide.
Scroll down to reveal some of the best debt consolidation loans in the UK!
Debt consolidation is when you gain access to more credit and use the money to pay off multiple other debts. For example, you could get a new loan to pay off two other loans and a credit card debt.
This streamlines your debt and makes it easier to budget for repayments. With fewer or just one monthly repayment to stick to, it’s much easier to manage your debt when it’s in one place. However, debt consolidation is also completed to gain a better interest rate to save you money.
What are debt consolidation loans?
Debt consolidation loans are a type of personal loan used to consolidate debts. The individual will apply for a consolidation loan (after careful consideration and comparisons!) and if approved will use the loan to pay off existing debts. They will then only need to pay back the debt consolidation loan.
A debt consolidation loan is not the only way to group your debt into a single loan. You could also use a Debt Management Plan that allows you to make one monthly repayment that is split between creditors agreeing to the DMP. You could also use a balance transfer credit card to transfer debts from other credit cards to the new one.
And you can even consider remortgaging to release equity in a property and then use the money to pay off existing arrears and credit. Borrowing against secured loans like a mortgage involves greater risk.
The pros and cons of debt consolidation loans
Like any debt mitigation strategy or debt solution, there are pros and cons. The relevance of these are sensitive to personal circumstances and situations.
- Many options with banks, building societies and online lenders (all authorised and regulated by the Financial Conduct Authority)
- Quick and easy to apply for a loan
- It’s proven that debt consolidation loans work
- These loans are available to some people without a good credit score
- The best debt consolidation loans have some low-interest rates
- Repayments could save you money and stress
- May not be offered the interest rate you need to reduce the total amount payable (usually due to a poor credit rating)
- The loan could make you pay back for longer
- These loans do not address the issues which caused multiple debts in the first place
How much debt can you consolidate?
There is no restriction on the amount of debt you can consolidate legally. But you will be restricted by the amount of credit you can access within a debt consolidation loan. An unsecured debt consolidation loan is routinely available up to a maximum of £25,000, suggesting you can only consolidate debts up to a value of £25,000 with one personal loan.
If you have large debts, consolidation may not be the best course of action. It may be more advantageous to use another solution such as an Individual Voluntary Arrangement. This should be discussed with a debt charity before making any moves.
How long can I borrow for with a debt consolidation loan?
Most debt consolidation loans in the UK will allow you to borrow money up to a maximum period of five years. This is usually more than enough time for people considering using one of these loans. But just in case you need longer, there are some lenders that are willing to extend the repayment period.
Is it a good idea to get a debt consolidation loan?
Many debtors can benefit from taking out a consolidation loan and consolidating their debts, especially if they can access a reduced interest rate compared to what they are currently paying on the debts they wish to consolidate.
However, if your credit score isn’t in good shape, you may be offered a loan with a higher rate than advertised, which could make consolidation an unworthwhile strategy.
It’s best to get free debt advice to have your individual situation assessed. Knowledgeable advisors will be able to guide you to the best course of action rather than prescribing a blanket-wide solution.
What are the best loans for debt consolidation?
The best loans for debt consolidation are personal loans for this specific purpose, namely consolidation loans. You can also use generic personal loans to consolidate your debts if the terms and conditions of that loan permit you to do so.
You may be able to use a secured consolidation loan instead, however, these are typically remortgaging loans and second charge loans that release home equity. We have a detailed guide if you want to know more about remortgaging for debt consolidation. And if you want to learn about the best consolidation loans with low APR examples – read on!
Representative APR explained
The interest rate you have to pay on the new loan will be bespoke to you. But since lenders cannot provide the exact rate for each website visitor, they have to advertise their loans and interest rates in the fairest way possible. They do this by advertising with a representative Annual Percentage Rate.
The Annual Percentage Rate, which we refer to simply as APR is the rate of interest paid over the course of a year, also taking into account any other fees and charges.
Thus, the representative APR is the rate that at least 51% of loan applicants received – or better. A creditor cannot advertise the rate if this is not the case, which can give an idea of what rate you’ll be offered and what your fixed monthly payments will be. Some lenders also publish a maximum APR showing the maximum rate you’ll pay if approved.
Best consolidation loans UK
There is no single best debt consolidation loan in the UK. That’s because everyone’s financial and individual circumstances are different. What could be the most advantageous loan for one person may not be the best debt consolidation loan for another.
Yet, when people search for the best debt consolidation loans in the UK, they’re really asking what loans have the lowest interest rates. To make your search easier and save you time, we’ve listed nine debt consolidation loan options with a low APR representative example if you’re a UK resident. They’re listed in no particular order.
Remember that these may be subject to change and we are referring to the representative APRs only. These providers may not offer you the best interest rate.
Halifax advertises an unsecured debt consolidation loan up to £25,000 and a maximum repayment period of five years. The APR example is currently listed at 3.5% which is comparable to many of the other high-street banks.
HSBC’s current debt consolidation loan is also available from £1,000 to £25,000 and can be repaid over a period of up to five years. The APR on this product is stated as 3.3%
#3: Virgin Money
Richard Branson’s Virgin empire is also operating more heavily in the UK financial market. You can even find Virgin Money branches on some high streets. The Virgin Money debt consolidation loan has one of the lowest APR examples in the market at 2.9%. However, the debt consolidation loans here are available between £7,500 and £15,000 so it might not be applicable to everyone. You can apply online.
#4: Lloyds’ Bank
Lloyds’ Bank also advertises a debt consolidation loan up to a loan amount of £25,000 and payable over five years. The APR example here is currently 3.9%.
TSB has the lowest APR example on our list at 2.8%. They offer these loans from £1,000 to £25,000 to be paid back over a maximum of five years.
Another recognisable name but not a high-street bank offering debt consolidation loans is Tesco. You can borrow up to £25,000 over a maximum period of five years with their APR example set at 2.9%.
NatWest offers debt consolidation loans with a value between £7,500 and £19,950 to be repaid over a maximum period of five years. Their representative APR example is currently 3.4%.
Santander does not advertise debt consolidation loans specifically, but they do offer personal loans that may be used to consolidate existing debts. The total amount you could borrow is £10,000 over a maximum period of five years. The representative APR example is 3%.
#9: Royal Bank of Scotland
The Royal Bank of Scotland’s debt consolidation loan is available up to £50,000 and can be repaid over a period of eight years. The current APR example at RBoS is 3.4%.
Can I get a debt consolidation loan with bad credit?
People with a poor credit rating will find it more difficult to get a consolidation loan than those with a good credit score. But that doesn’t mean it’s impossible to get one of these loans. If you are approved, it’s possible that you will be offered a loan with more interest to pay than the representative APR example suggested.
If there is a big difference between the representative rate and what you’re offered, it might not be worth consolidating anymore.
You might be rejected by the best consolidation loan providers. Don’t apply for multiple loans consecutively in a short space of time, as this could worsen your credit score and cause you to get rejected over and over again.
I can’t get a loan, now what?
If you really want to consolidate but cannot access the best debt consolidation products, there is an alternative option.
You could consider using a Debt Management Plan, which is one method of consolidating repayments without actually consolidating your debts into one.
A Debt Management Plan is an agreement with multiple creditors when you are struggling to make full repayments. The creditors agree that you can make a single monthly payment, which is then proportionally split between them depending on how much you owe each of them, i.e. who you owe the most receives the biggest percentage of your single payment.
DMPs can be a beneficial alternative for those rejected by the best consolidation loan providers.
Personalised free debt advice!
If you hadn’t worked it out by now, debt consolidation loans are a very tailormade affair. The best UK consolidation loan for one person may not be the same or even available to someone else.
This is one of many good reasons to choose free personal debt advice before deciding to apply.
We recommend getting in touch with either Citizens Advice, National Debtline, Step Change or one of the other excellent charities that can support you.