It is possible to find unsecured debt consolidation loans for bad credit. Many lenders advertise these personal loans specifically for people who have a bad credit score. We explain the details here and provide some examples of bad credit consolidation loans.
If you need additional support and advice, it’s best to speak with a UK debt charity. These groups provide free and confidential advice when considering debt consolidation.
What is debt consolidation?
Debt consolidation is a strategy used to move all your existing debts into one place while also reducing your monthly repayments. It works by taking out new credit and using the money to pay off your current credit sources. Instead of paying multiple creditors through various monthly repayments, you now just have one monthly payment to pay back the new credit.
Reducing the number of payments you need to budget for per month will make it easier to manage your finances and avoid debts from growing. To save money at the same time, the new credit should have a lower interest rate compared to the interest rates you were paying before consolidating.
Debt consolidation is usually achieved through either:
- Unsecured personal loans and debt consolidation loans
- Balance transfer credit cards
- And some debt solutions
What is a debt consolidation loan?
Consolidation loans are a type of credit used to consolidate debts only. You’ll need to be of a certain age and a UK resident to be eligible to apply. Most of these loans are unsecured loans, as opposed to secured loans where you need to list assets as collateral if you fail to repay. A debt consolidation secured loan is when you remortgage and your home is on the line.
To be approved for any unsecured loans you will have to undergo a credit check and provide details of your income so the lender can be sure you can afford the new loan monthly repayment.
You should only ever apply to lenders that are authorised and regulated by the Financial Conduct Authority. Using illegal lenders and loan sharks can cause more debt problems in the future because they don’t practice responsible lending.
What is the representative APR example?
Personal loans are advertised with representative example interest rates and fees for a full year, known as APR. This example allows you to compare different loans easily. The representative example advertised by each lender must be what 51% of their applicants received.
However, the interest rate you will be offered – if approved – will depend on your personal financial situation and credit rating. Be aware that you could be offered a higher interest rate that might not reduce your monthly payments, especially if you have a bad score.
How can I consolidate my debt with bad credit?
There are still ways to consolidate debts with a bad credit score. Bad credit debt consolidation loans are advertised widely online for people with a less than satisfactory credit rating. However, these bad credit debt consolidation loans typically have a higher APR representative rate. Or you may still be able to get a debt consolidation loan advertised to people without bad credit, but the rate you are offered can be much higher.
You’ll need to calculate if debt consolidation is still worth it if you have bad credit and are only able to get personal loans with high interest.
If you are worried about your credit history stopping you from getting loans, you could try and improve your credit score first. You should look for mistakes on your credit file and have them removed. Or register on the electoral register for a slight credit score boost.
Another option is to consider a DMP instead, which we discuss towards the end of this guide.
How to get an unsecured consolidation loan for bad credit
The way to get an unsecured consolidation with bad credit is the same way as you would go about getting any loan with good credit. You need to search your options and apply truthfully. Most applications are completed online quite easily, but you may be able to apply in a branch if you’re using a high-street bank.
The only difference is when you have bad credit, you should be looking for loans specifically available to you. Later in this guide, we will provide some examples of unsecured loans for bad credit.
What debts can I resolve with a consolidation loan?
An unsecured personal loan to consolidate debt can be used to pay off store cards, credit cards and other personal loans. Note that a balance transfer credit card can only be used to resolve other credit card debts.
How much can I borrow?
Each lender will offer personal loans up to different amounts and repayable over different periods of time. Even with poor credit, you can still find these loans up to £25,000 to be repaid over five years.
How to find a debt consolidation loan without collateral
To find an unsecured debt consolidation loan and not have to risk any of your assets, you should search the major banks and lenders. People with a poor credit rating may want to search for online lenders as well. Most debt consolidation options for people with a poor credit report are advertised by online loan providers, and less so by high-street banks.
Unsecured debt consolidation loans for bad credit
You can find unsecured debt consolidation loans for bad credit by searching online. There are even websites that compare your options, and you could use a credit broker if preferred. Although the latter may come at an additional cost.
Below you can find examples of unsecured consolidation loans for bad credit. These are in no particular order and they are here as examples only. There may be a better option not listed here.
Pegasus offers bad credit loans between £2,000 and £15,000. Their website does not immediately provide a representative rate, but you can complete a short survey to get a personalised quote. Pegasus has some exceptional online reviews and claims to put the money into your bank account within just one hour of being approved. If you need to consolidate between the loan amounts available with bad credit, they are one option to consider.
- Everyday Loans
Everyday Loans are an online lender. You may have heard about them before because they do have some TV ads at the time of writing. They market a generic personal loan that can be used to consolidate debts for people with bad credit. The representative rate advertised is 99.9% APR. They also have some decent online reviews with a good TrustPilot overall score.
- Likely Loans
Likely Loans offer unsecured consolidation loans for bad credit between £500 and £5,000. These loans must be repaid in a maximum period of three years and the representative rate is stated as 59.9% APR at the time of writing, subject to change.
- Solution Loans
Solution Loans have different products for people needing short-term and long-term credit. They have short-term loans for balances up to £2,000 and longer-term loans up to £25,000. They are also marketed for people with bad credit, claiming to help those who would be rejected elsewhere.
- Koyo Loans
Koyo offers loans that can be used to consolidate debts between £1,500 and £7,500 with a representative rate of 26.9%. These loans are unsecured and must be repaid within a maximum period of five years.
- 118118 Money
118 118 began a personal loans business in 2013 and also offers these loans for people with an unsatisfactory credit history. Their loans are available between £1,000 and £5,000 to be repaid between one and three years. The representative rate at the time of writing is 49.9% APR.
Will my bank give me a debt consolidation loan with bad credit?
Your bank will assess you for unsecured credit in the same way they would assess someone who does not bank with them. As a responsible lender, their decision will be based on your income per month and your credit history – not if you currently bank with them.
There is no way of saying if your credit record will stop your bank from approving the loan because the FCA allows each institution to complete its own assessments while following guidelines.
One advantage of using your own bank is that the funds may be deposited into your account quicker if approved. Because you already have your bank account with them, they can generally give you the money faster.
Does debt consolidation affect your credit score?
Debt consolidation will not negatively affect your credit rating unless you do not keep up with your monthly payment. If you fail to pay your monthly payment the new lender can register defaults on your file and even take you to court.
The act of applying for a debt consolidation loan also won’t negatively affect your credit rating, unless you make lots of applications in quick succession. When you apply to borrow money, lenders complete a hard check on your file. Too many hard checks can damage your rating.
The difference between a hard and soft check is that a hard check leaves a mark for other lenders to see that you have asked to borrow finance. Lots of hard check flags suggest you may have bigger financial problems than you let on, making lenders more cautious about giving you finance.
Consider a debt consolidation guarantor loan
If your credit history is stopping you from getting an unsecured debt consolidation loan, there is another type of loan you may be able to get, namely, a guarantor personal loan. These loans require someone with a good credit score to vouch for your repayments, meaning this other individual will be responsible for repaying if you don’t make repayments in full.
The guarantor will need to be someone who trusts you to make repayments on time and repay the full loan amount. It is usually a family member or partner.
An example of a provider of these loans is Guarantor My Loan. There may be better options available and it’s important to search the market for the most advantageous lender.
A bad credit debt consolidation loan alternative
An alternative to consolidation that is a lot like consolidating debts is a Debt Management Plan (DMP). A DMP is when you agree with a group of your creditors to make a single monthly payment and then that payment is divided between them based on how much you owe each of them.
In a simplified example, instead of making five payments of £50 each month, you can try to negotiate to make one payment of £250 which is split between all five. This doesn’t necessarily consolidate debts but it does allow you to benefit from single monthly payments. However, most people try to negotiate lower payments or repayments without any interest added.
This alternative is useful for people with a poor credit rating because they do not have to apply for a loan. They can somewhat consolidate by asking creditors to agree, rather than having to go through an application process.
Is a consolidation loan right for me?
Consolidating debts has helped plenty of debtors to pay off lenders and make managing their finance easier. It’s also saved money on repayments.
But this doesn’t mean it’s guaranteed to be the best option for you. There could be a better method and a more efficient debt solution that fits your situation. To discover what’s right for you, speak with a UK debt charity.
Charity advisors from National Debtline, Step Change and other excellent groups will provide tailored advice and support service. With their free help, you could avoid any mistakes and get out of debt with a more advantageous method.
For example, a Debt Relief Order could help non-homeowners write off all of their debt in just one year.
More personal loans help at MoneyNerd!
There’s a lot to get your head around when looking for the best deal to consolidate personal debts. That’s why Money Nerd has published scores of great articles discussing this debt mitigation strategy and how it really works.
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