Want to know how to apply for a debt consolidation loan? You came to the right place. We provide a crash course in debt consolidation and dive into how you should apply for a loan to consolidate debts safely. A debt consolidation loan could save toy worry, time and money – read on!

Debt consolidation in a nutshell 

Debt consolidation is a way to reduce the number of creditors you owe money to, often consolidating every debt you have into a new single debt and one monthly repayment. 

If you have personal loan and credit card debts, you could consolidate all of these by taking out a new loan to pay them off. Instead of having multiple credit cards and loan repayments, you’ll now have just one to pay back in a single monthly payment. You could get cheaper accumulative payment as well. 

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Benefits of consolidating your debts

There are lots of benefits, such as:

  1. With fewer creditors and payments to track it’s less stressful and easier to manage your budget.
  2. In hindsight, it could prevent further missed and late payments and safeguard your credit score.
  3. You may be able to access personal loans for consolidation with a more attractive interest rate, saving you money. The interest you pay will or will not make this strategy worthwhile. 

A personal loan is just one wat to consolidate. You can also do this using a special type of credit card, remortgaging and even some debt solutions

Do banks give loans to consolidate debt?

Most banks and building societies offer loans for specific purposes, including debt consolidation, car purchases, home improvements and even buying a property – i.e, mortgages. As well as high-street banks, you can usually find these loans online with various personal loan companies. 

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Only ever borrow from a lender that is authorised and regulated by the Financial Conduct Authority (FCA). 

What are debt consolidation loans?

A personal loan that is given to a debtor to consolidate debt goes by the name of a debt consolidation loan. Debt consolidation loans are only available for people who genuinely want to use them to consolidate debts. They cannot be used for other purposes. 

To qualify for a debt consolidation loan, you may need to be of a certain age, a permanent UK resident and your credit score will be checked by the bank or personal loan provider. 

What does representative APR mean?

When searching for a debt consolidation loan, you’ll come across the phrase “representative APR” frequently. To understand what this means, we need to dissect the term into two parts, namely “representative” and “APR”. And we need to work backwards starting with APR.

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APR stands for Annual Percentage Rate, which is a fixed rate of combined interest and additional fees you’ll need to pay to borrow a fixed amount per year. Whereas representative means a representative example of the consumer population and is used to market personal loans ethically. It can only be advertised as a representative example if 51% of that lender’s customers received this rate or a lower one. 

Thus, the APR representative is used to help you compare different debt consolidation loans on the market quickly and somewhat accurately, often with the help of an online loan calculator. 

But you should also be aware that the APR representative you are offered may be different as it depends entirely on individual circumstances.  The maximum APR you may be offered might be much higher than advertised. 

Are debt consolidation loans easier to get?

Debt consolidation loans are unsecured loans, meaning there are no personal assets secured against the loan value. This makes them more difficult to get than secured loans where the lender has something to fall back on. However, because of the nature of debt consolidation loans, they can be easier to access than some other personal loans. 

But as is the case when you apply for a loan, your financial history will be checked. If your score is really poor, you may not be able to get one of these loans. 

How can I get a debt consolidation loan?

You can get a debt consolidation loan online. Apply online and usually get a decision fast unless you apply on bank holidays. If you try to get one of these loans through your current bank, you may be able to apply through online banking services and get an even quicker decision, sometimes even instantly. You could also apply by going into a branch if using a high-street bank. 

How to apply for a debt consolidation loan?

Don’t just search for a loan and apply straight away. Take your time and follow this five-step process to do it right and maybe even save some money. 

Step #1: Get free advice first

Debt consolidation isn’t the most effective debt management strategy for everyone. Some people may save more or even wipe some of their debt using a debt solution. And there are other strategies you can use when you have multiple debts, such as the snowball method. 

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This is why it is essential to speak with a free debt advice charity first to see if the loan is right for your situation. You could call National Debtline or Step Change UK. Their advisors will assess your situation and give you a green light or suggest alternatives. 

Step #2: Search the market – and compare!

Once you’ve been reassured it’s a good option for your circumstances, it’s time to search the market for the right loan. Start by making a list of all the options available to you, and use any personal loan calculator to work out monthly repayments. 

Once you have a shortlist, compare the fixed monthly payment each one is offering and compare them against your current fixed monthly repayments of the debts you wish to consolidate. Remember to include all interest and fees. Charities could help at this crucial stage. 

If the lenders are offering a lower interest rate, keep them on your shortlist. But if they’re significantly higher then you can forget them.  

Step #3: Compare your options

Now that you have a list of potential loan providers that can potentially improve your debt situation, it’s time to compare them. Don’t immediately choose the one that offers the cheapest rate of interest because remember, representative APR interest rates are subject to your individual circumstances. 

You may want to do some further digging to see what other people were offered. Forums are a great source for this. And you could speak with the company directly to see if they can make an offer in principle before checking your credit file. 

Step #4: Make an application

Once you’ve settled on a lender you would like to borrow from, check your credit file for any mistakes that could cause you to be rejected. Then make an honest and truthful application, using their genuine website. 

Step #5: Sit tight! 

Play the waiting game until you receive a decision. You don’t want to apply for multiple loan amounts as this could damage your credit file and result in overborrowing. If you are rejected, you may choose to wait between applications or consider alternative options instead. 

Do debt consolidation loans affect credit rating?

Applying for one of these loans leaves a mark on your file which does not cause sustained damage. You can only negatively affect your rating through multiple applications over a short period. 

How do I get a debt consolidation loan with bad credit?

If you already know you have a bad financial history, search for lenders who specifically lend to people in these situations. Online forums are again a great source of insight. You may have to pay a higher rate of interest. 

Discover more consolidation help and support!

Additional information and related FAQs are being answered right here on MoneyNerd. Come back soon to get more valuable insight and quick answers to common debtor questions! 

About the author

Scott Nelson

Scott Nelson is a financial services expert, with over 10 years’ experience in the industry, including 6 years in FCA regulated companies. Read more
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