Debt Consolidation Loans for Poor Credit – 2022 Guide
Have you been searching for consolidation loans for poor credit? This guide is all about consolidation loans for bad credit. If you want to consolidate but are worried that your credit score is holding you back, there may still be options to explore.
We uncover some examples of bad credit debt consolidation loans – and some alternative options that could work for you.
Debt consolidation quick summary
Debt consolidation is when you merge all your debt together, so instead of paying monthly repayments to multiple lenders, you just pay one monthly payment. At the same time, you might be able to reduce your monthly interest rate and save money.
So, how does it all work? There are different ways to achieve debt consolidation, but using any method involves taking out new credit. You take out a new loan, mortgage or credit card to pay off existing debts. Thus, the credit or loan amount must be large enough to repay those debts.
Once you have made the repayments in full – which may be subject to early repayment fees – you have consolidated your debt and now only have to make a single monthly payment. You could consolidate debts and reduce your monthly repayments and make them more manageable, but you may have to pay back for a longer period.
Benefits of debt consolidation
Some of the benefits of consolidating your debts are:
- You can do it with secured loans or unsecured loans
- You might still be able to do it with a poor credit history
- You’ll only have to make single monthly payments, making it easier to keep track of debt and stay on top of it
- You might be able to access a lower interest rate
What is a debt consolidation loan?
A debt consolidation loan is a type of loan used exclusively to merge your debts together. They are available from banks, building societies, a credit broker and online loan lenders.
You’ll usually need to be a UK resident for so many years, be at least 18 and have a job to be eligible to apply. You’ll then need to have your credit score checked.
These loans include interest just like any other unsecured loan. If approved, the rate you are offered may be different from what is advertised, i.e, the APR representative example. You should only apply for a debt consolidation loan from a lender that is authorised and regulated by the Financial Conduct Authority (FCA).
You can also get debt consolidation loans with a bad credit score. We provide some examples later in this guide.
What debts can I resolve with a consolidation loan?
Debt consolidation loans can be used to pay off other personal loans, credit cards, store cards and similar debts. Debt consolidation loans work if you have done the right calculations. If you need help then you should seek free debt advice from a charity.
If you only aim to consolidate credit card debts, then you may want to consider a credit card balance transfer instead. We explain what this is in this guide!
How much can I borrow?
The amount you can borrow through a debt consolidation loan will depend on the lender. Many of the UK banks advertise these personal loans from £1,000 to £25,000 to be repaid over a maximum loan term of five years. But this is subject to change.
Some online lenders will let you borrow more, while others are capped somewhere between £8,000 and £15,000.
Is it a good idea to get a debt consolidation loan?
A debt consolidation loan could make handling your finances easier with just one monthly payment. If you can access a better interest rate then they’ll even save you money on credit and debt repayments. But that doesn’t automatically mean they’re the best option for you.
The best strategy to handle your debts is based on personal circumstances. You might get out of debt faster and cheaper using another technique or debt solution. For a bespoke and personal debt advice service, speak to a UK debt charity or Citizens Advice.
Debt consolidation and your credit history
Because consolidating your debts requires you to take out new credit, you will be required to make a credit application and have your credit score checked. The lender you apply to needs to analyse your credit report to see how well you handled money and repayments in the past. If you have defaults and arrears, they will see you as a greater lending risk and may not offer you the best deal – or they may reject you altogether.
But all is not lost with a bad credit debt consolidation loan….keep reading!
Can I apply for a debt consolidation loan with no credit check?
The Financial Conduct Authority requests that lenders offering personal loans do their own necessary checks on consumers applying for credit. It is stated that they must make sure applicants are suitable for loans and can afford them, as part of responsible lending. These checks should include an assessment of personal circumstances such as income and a credit rating check when applicable.
Debt consolidation loans with no credit rating check do not exist from responsible legal lenders.
However, some lenders offer to provide free quotes without checking your credit score. This is a preliminary service before the applicant submits a real application. These quote services can be beneficial in telling you in advance if you wouldn’t be accepted, but they are not 100% accurate. The interest rate you’re offered may not be the same as the one you received in a free quote service.
Making a real application can leave a mark on your credit rating, so these preliminary services can be beneficial when shopping around for a personal loan.
How to get a debt consolidation loan with poor credit
To get a debt consolidation loan with bad credit, you need to look for personal loans providers that will lend to people with bad credit. This typically means avoiding the big high-street banks with low-interest rates and searching for personal loans with online lenders and online banks – but not exclusively. There’s no winning formula but looking at lenders who are more likely to lend to people with bad credit will help.
Alternatively, you may want to take some time to improve your credit score before making a personal loan application. To do this, keep up with monthly payments on existing personal loans and credit cards etc. And try to reduce your credit utilisation rate if you do have a current credit card.
Another way you could positively affect your credit score is to check your credit record for errors. Sometimes lenders will mistakenly add defaults to your credit record which decreases your score. If you see any mistakes then you can ask for them to be removed, first directly with the lender and then ask the credit reference agency.
Unsecured debt consolidation loans for poor credit
Below are some examples of consolidation loans for bad credit. They are listed as examples of such providers only and are not necessarily the best loans you should apply for. They’re also not listed in a particular order. Always do your research before deciding to apply for a loan, including reading the companies’ latest reviews.
Likely Loans offer smaller loans between £500 and £5,000. Many other lenders start their credit at £1,000 minimum so they could be one option if you wish to borrow less to consolidate. They must be repaid within a maximum period of three years. And the current APR representative example is 59.9%.
- Koyo Loans
Koyo advertises these bad credit loans between £1,500 and £7,500 that need to be repaid over a loan term of five years maximum, which is standard. At the time of writing the representative APR is 26.9%.
Pegasus provides bad credit loans for amounts between £2,000 and £15,000. They have some excellent online reviews and state they will put the money into the applicant’s bank account just one hour after approval.
You might remember 118 118 as two skinny marathon runners advertising a phone number on UK television. But the company moved into the financial sector in 2013 and now offer loans, including for those with bad credit.
They welcome applications for loans up to £5,000 only, with a representative APRof 49.9%.
Solution is a credit company offering a wide variety of loan products, including unsecured, secured and even guarantor loans (more on these towards the end of our guide). They specifically advertise their loan products to people with an unsatisfactory credit history and they can be sued for consolidation purposes.
Their loans are available up to £25,000 just like many high-street UK banks and building societies.
Does debt consolidation hurt your credit score?
Debt consolidation will only negatively impact your credit score if you do not keep up with monthly payments. This is the same for any other personal loan.
You could damage your rating if you apply for secured loans or unsecured loans too often in a matter of weeks. This is because lenders leave a flag on your file to say they have received an application for credit and are making an assessment, officially known as a “hard search”. These flags are left to warn other lenders and can be detrimental if too many are accumulated within weeks as it suggests the applicant may have hidden money problems.
Alternative debt consolidation options for people with poor credit
If you have bad credit and the debt consolidation loans available to you have higher interest than you need to consolidate effectively, there are other options. These alternatives are also good if your credit report is stopping you from getting any debt consolidation loan at all.
Debt Management Plans (DMP)
A DMP is often considered one for the methods of debt consolidation, but it’s not exactly the same. A DMP is an agreement between you and multiple creditors to make a single monthly payment which is then split between all creditors proportionally to what is owed.
DMPs can be negotiated directly, with the help of a debt charity or through a debt management company for a fee. Some negotiations can get the interest frozen or your monthly repayment decreased.
They are similar to debt consolidation because you will only have one monthly repayment to make. But they’re not exactly the same because you don’t really consolidate your debts. The benefit is that there is no credit search involved!
Guarantor consolidation loans for bad credit
Guarantor personal loans could help you achieve debt consolidation with a bad credit score. These are loans that must be applied for with a guarantor, someone who will be responsible for making repayments if the main applicant does not make full and timely repayments themselves. Your credit history may not be as relevant when a guarantor is included.
The guarantor will need to meet set criteria, such as having a good credit rating or even own their own UK home. Sometimes this makes them a type of secured loan. However, you might be able to get a better interest rate with a guarantor loan because you are less of a risk due to the guarantor being responsible for repayments too.
Other debt solutions
If bad credit is stopping you from accessing a debt consolidation loan, it’s well worth considering other methods of mitigating debt or even writing some of it off.
MoneyNerd has created this debt solutions page to explain all of the common methods of getting out of debt legally. You could make your monthly payment lower or get out of debt with less stress.
Speak with a debt charity to get further advice on any of the solutions listed on our page.
Poor credit debt consolidation loan help!
And make sure to speak with a debt advice charity before applying to consolidate debts. Comparing one interest rate against multiple other rates can be confusing, especially when there are other factors to consider, such as fees, terms and conditions.
The same debt charities could help you make sure consolidation is the most advantageous method – and could help you make it happen!