How to compare debt consolidation loans in the UK
A suitable consolidation loan depends on your debts, budget and the terms actually available. This guide explains how to compare options.
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.
Consolidation is new borrowing, not debt write-off. Compare it with free debt-advice options before applying.
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.
| Pros | Cons |
|---|---|
| May shorten repayment if affordable and structured to do so | Ineligible for a loan |
| One monthly payment | Risk of defaulting |
| Potential interest rate reduction | Added costs |
| Fixed payments only with a fixed-rate product | Higher Interest over time |
| Credit effects depend on applications, repayment history and the wider file |
How to compare consolidation loans
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.
Minimum ages differ by lender and product. Check the current eligibility information before submitting a full application.
Meeting an age requirement does not establish affordability or guarantee approval.
Some lenders restrict products to existing customers; others accept new customers. Verify the current rule for the particular loan.
If an account relationship is required, check any minimum account age and other conditions.
A broker or comparison service may help identify possible lenders, but ask about panel coverage and whether the check affects your credit file.
Compare: products for which you appear eligible.
Avoid: applying solely because of a historic provider ranking.
For APR Rates
The APR rates advertised on bank websites should be taken with a pinch of salt.
For a regulated consumer-credit promotion using a representative APR, that rate or lower must be expected to apply to at least 51% of credit agreements entered into as a result of the promotion. It is not a promise to 51% of everyone who applies, and the rule should not be applied indiscriminately to mortgage APRC illustrations.
Your personalised APR and total amount repayable matter more than an old headline or maximum rate.
Rates and eligibility change and depend on the product and your circumstances. Obtain a current personalised quotation or mortgage illustration and compare the total cost, fees, rate type and repayment terms; figures in this article are not live offers.
Historic rates are not retained as current comparisons. Ask each lender for a quotation for the same amount and term.
Compare total repayment, compulsory fees and any settlement charges; a lower maximum advertised rate does not establish the best personal offer.
Compare: personalised rates and total repayment costs.
Avoid: assuming one named bank is the winner for every borrower.
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.
Enquire about borrowing options through Loans Warehouse
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.
Check whether the actual loan offers payment holidays and whether you qualify; provider features can change.
A payment holiday may defer payments while interest continues to accrue, increasing the term or total repayment.
Assess the cost of any holiday
An agreed holiday can provide short-term breathing space, but it is not free credit or a substitute for an affordable budget. Speak to the lender before missing a payment.
Compare: the written terms and cost of an agreed payment break.
Avoid: assuming every customer receives a holiday automatically.
For Early Settlement
Early settlement is when you pay off your loan early.
An early-settlement figure may include permitted interest or charges and a rebate of future interest. Ask the lender for the actual figure.
Settlement terms differ. Do not rely on historic bank-specific numbers when deciding whether early repayment saves money.
A claim of “free early repayment” needs to distinguish overpayments from full settlement and check the current contract.
Compare: the actual settlement figure.
Avoid: choosing a loan solely because an old guide labels settlement free.
Explore secured loan options
Loans Warehouse is a credit broker, not a lender. You can enquire about options based on your circumstances. Approval and terms depend on lender checks; an enquiry is not a guaranteed offer.
Compare the interest rate, fees, monthly payments and total amount repayable. A longer repayment term can increase the overall cost. Consolidating unsecured debts into a secured loan puts your home at risk.
MoneyNerd introduces enquiries to Loans Warehouse and may receive a referral fee. Broker and lender fees may apply and should be explained before you proceed.
Your home may be repossessed if you do not keep up repayments on a loan secured against it.
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.
The following names are background examples, not a verified current product list. Check each provider’s current availability and eligibility.
- Santander
- HSBC
- NatWest
- Halifax
- Barclays
- Lloyds
- Royal Bank of Scotland
- Nationwide
Choosing a suitable offer
There is no verified overall top pick in this guide. Compare the offers actually available to you using the same amount and term.
Compare the total amount repayable, interest, all fees, the term and early-repayment charges. A lower monthly payment can mean a longer term and a higher total cost. Securing previously unsecured debt against your home puts the property at risk if you cannot keep up repayments.
A Loans Warehouse customer’s experience
Individual experiences vary. Compare the total cost, fees, repayment term and risks before applying. A lower monthly payment may mean paying more overall, and secured borrowing puts your home at risk if repayments are not maintained.
Polly
“This was by far possibly one of the nicest experiences I’ve had getting a secured loan.”
Reviews shown are for Loans Warehouse. Search powered by Loans Warehouse.
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?
Consolidation may be unsuitable if the total cost rises, payments are unaffordable or it puts your home at risk. Poor credit can limit offers, but suitability requires comparing the actual terms and alternatives.
References
