Debt Consolidation Loans Eligibility – Complete Breakdown with Guide, FAQs & More

Are you looking to get a debt consolidation loan?

If so, you may be wondering if you’re even eligible for it in the first place.

I’ve compiled a guide on everything you need to know about debt consolidation loan eligibility and have added an FAQ section for further clarity.

Let’s get right into it.

“Am I Eligible for a Debt Consolidation Loan?” 

There are a few conditions that you have to go through to determine if you’re eligible for a debt consolidation loan. Here’s a thorough breakdown.

  1. You have been a resident of the UK for at least three years
  2. You’re older than 21 and not older than 70 at the time when the loan expires
  3. You have a good credit rating 
  4. 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
  5. You can ensure that you are able to meet the repayments in time since missed payments will have harmful consequences for your image as a borrower
  6. You have a regular income of more than £12,000 a year
  7. You don’t have a history of County Court Judgements or bankruptcy
  8. You have a bank based in the UK or a building society account that can pay direct debits.

If you meet all these requirements, you can easily apply for debt consolidation loans.

debt consolidation loans eligibility

Get a Debt Consolidation Loan with Bad Credit – Possible Options

Okay, so let’s say you have bad credit and you need to borrow a debt consolidation loan. What can you do about it? Let’s take a look.

  1. Be aware of your credit report

Your credit rating is the most important factor in whether you’re able to borrow and the terms at which you’ll be offered loans.

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

There are lots of free tools out there that allow you to view the most recent version of your credit report. Several banks will allow you access to these tools.

  1. Explore multiple fronts

Don’t limit your options.

Bad credit can make you feel like you 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. Try secured loans

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

A secured loan is one 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.

Also, you’ll get it at lower interest than a loan that isn’t secured, 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, since you’re seen as an unreliable borrower.

  1. A good credit rating never hurts

Having a good credit score is central to getting a consolidation loan.

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.

Do Debt Consolidation Loans Hurt Your Credit Score?

Yes, debt consolidation loans can hurt your credit score.

For one, when you apply for a credit loan, a “hard search” is performed on your credit report.

It usually brings down your credit rating, but temporarily. So you don’t have to worry about it too much.

Secondly, if you get a consolidation loan that you can’t handle and you miss monthly payments on it, your credit rating will most likely go down.

Regular payments have a strong effect on bringing up your credit rating, and missing them can damage your credit report.

Even though debt consolidation loans can hurt your credit score, this is mostly caused by negligence and miscalculation on the debtor’s part.

When is it a Good Idea to Consolidate Debts?

In general, it’s a good idea to consolidate debts when you have a good credit score and you’re sure you can borrow a big amount of money at a very low interest rate.

Also, having good credit means that you’ll have better access to unsecured loans, so you won’t run the risk of losing your car or your house.

When you’re sure you can pay the consolidated debt back in time, you should go for it.

The rules are pretty simple. If it doesn’t hurt your credit score, if the terms of the loan are suitable, and if you can manage repayments easily, it’s a good idea to take the loan.

If you need any debt advice in this regard, you can seek professional debt advice from independent charities such as StepChange and National Debtline.

FAQs

How much can you borrow on a debt consolidation loan?

In general, you can borrow anywhere from around 500 to 35,000 on a debt consolidation loan.

However, there are some lenders that will lend you up to 50,000, depending on your credit report and your borrowing history.

How long does debt consolidation stay on your credit report?

In the UK, consolidation loans will stay on your credit report for a period of six years after you pay them off or default on them.

What is the smartest way to consolidate debt?

The best ways to consolidate debt are usually ones where you can get a big loan at a very low interest rate.

If so, you can use it to pay off any existing debts and then pay back the consolidated loan, which will normally be much less than the total amount you’d have to pay on your original debts.

When should I not consolidate debts?

There are two situations where I’d recommend that you don’t consolidate your debts.

The first is if you’re overwhelmed by debt and consolidation loans just won’t do the trick. If you can’t pay back your loans even with debt consolidation, consider a debt management plan or insolvency.

 The second is when you have a debt amount that you think you can back in less than a year’s time. If that is indeed the case,  you’re better off avoiding the burdens, charges, and fees that come with debt consolidation.

The second scenario is if you’re overwhelmed by debt and consolidation loans won’t be enough. If you can’t pay back your loans even with debt consolidation, consider a debt management plan or insolvency.

Can I get an unsecured debt consolidation loan?

Yes.

You can get an unsecured debt consolidation loan.

There are a few considerations though.

For one, an unsecured debt consolidation loan is one you’ll usually get at a higher interest rate than a secured loan because you’re not putting up any asset of yours as collateral towards the loan.

Unsecured loans are harder to get than secured loans, especially if your credit rating is poor.

If you’re chased by debt collectors who want you to repay them, you need to know how to deal with them.

Wrapping it Up

One of the biggest grey areas pertaining to debt consolidation loans is the list of criteria that determine whether someone is eligible to apply or not.

This guide was designed to help remove any ambiguities and answer any questions you may have about whether you’re eligible for a consolidation loan.

If you need any more debt advice, feel free to reach out.


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