Debt consolidation loans and bad credit
Debt consolidation is certainly open to you if you have poor or bad credit. Debt consolidation loans are used by many people with a less than favourable credit history. Whether you are wondering about bad credit score or tired of thinking about where to get a consolidation loan with bad credit, we are here to help you out.
All credit scores are considered by lenders. There is no such thing as a “black list” for credit history. You’ve got nothing to lose by getting in touch.
All you have to do is use our quick application form, tell us a little bit about yourself, and you could have the funds you need quickly.
Understanding your credit score
It is a good idea to take a look at your credit score before you apply for a debt consolidation loan.
The two big credit agencies in the UK are Experian and Equifax. Both use different criteria to assess a person’s history and calculate a credit rating.
As a rule of thumb, Experian assesses credit scores out of a total of 999. A score up to 720 is generally regarded as being ‘poor’ or ‘very poor’. Equifax, on the other hand, classifies scores out of 700 and will detail ratings under 380 as being ‘poor’. Not all lenders will take this view however. And how a lender rates your score varies between each one.
Good news though, regardless of how poor your credit score might be, debt consolidation is still an option and if you apply we’ll help find the best loan for your needs and circumstances.
Can I apply for a debt consolidation loan with no credit check?
If you do have a history of poor credit, you might get a bit nervous about making an application for a debt consolidation loan. You can not take out a debt consolidation loan without a credit check though.
Once you apply for debt consolidation, your credit score will be checked. Still – even if you have a very bad credit score – all ratings are considered.
Having a poor history – in itself – may not cause your application to fail. In fact, you have nothing to lose by applying for a debt consolidation loan today.
Do debt consolidation loans hurt your credit score?
Taking out debt consolidation can be a good way to improve your credit history. However, your rating may initially fall a little as you are taking out a new credit agreement.
Beware of applying for lots of loans. A record of applications stays on your file and potential lenders may worry you have become desperate for the money. A specialist debt consolidation provider such as ourselves has access to a panel of many lenders and can select the best option to apply to so you don’t have to search.
Debt consolidation to improve your credit score
Eventually though, your credit score should improve as you make regular payments on time on the debt consolidation loan.
Furthermore, as your credit utilisation ratio decreases and the number of creditors reduces, you should also start to see improvements in your credit rating.
Improving your credit rating potentially giving you access to better rates of interest and other financial products in the future.
Using the funds from a debt consolidation loan to pay off several different creditors and then closing those accounts demonstrates that you have control of your debts.
Credit scoring considers your credit utilisation. This is an indicator of how much available credit you have and how much you are using. For example, if you had just one credit card with a limit of £1,000, and if the balance is £500, your ratio would be 50%.
Once you have consolidated your debts, repaid and closed your other accounts and begin to make payments on the new debt consolidation loan your ratio will decrease. As a rule of thumb, lenders tend to recommend the figure be kept below 30%.
Your payment history will improve with a debt consolidation loan providing you keep to the terms of it. Making regular payments on-time towards one creditor is a great sign that you’re responsible with money. This will be reflected in your credit score in time.
Should I consolidate my debt before applying for a mortgage?
Getting a mortgage to buy a property is usually the biggest financial decision most of us will make. Problem debts can reduce your chances of turning the dream of owning a house more difficult.
During the mortgage application process the bank or building society will check your financial standing, history and credit report.
The potential lender will check details of what financial products you are using and how you have used them. This will include all borrowing, credit cards and personal loans.
The lender will check your repayment history and look at whether any action has been against you. The mortgage provider will consider any arrears, late payments or county court judgements and consider these to be a negative sign of how you manage money.
The mortgage provider has to satisfy themselves that you’ll be able to repay the loan they may be about to offer and that it will be affordable to you over a period of time.
There are strict rules to ensure mortgage lenders only provide money to people who can afford to repay it. As a result, if the credit report indicates to the lender that you have had issues with repaying debts before, that provider may be reluctant to approve the mortgage.
If you already have a lot of debt, the mortgage provider might determine that the property loan could push you into financial difficulty. This may apply even if you’re paying everything on time.
How a lender approves a mortgage is calculated on risk and potential ‘what if’ scenarios. Resolving multiple debts by consolidating them should paint a much more positive picture of your circumstances to the mortgage lender.
With a debt consolidation loan, you will have successfully cleared monies you owe. These accounts will then be recorded as ‘closed’ or ‘paid in full’ on your credit file.
If you’ve paid off all your accounts in full this should demonstrate you’re far more responsible than someone with multiple debts who has had difficulty in paying them back as required.
A big part of getting approval for a mortgage is your debt-to-income ratio. If you reduce your debt by paying it off quickly after consolidation, then you will be in a better position when you apply for a mortgage.
Are there alternatives to debt consolidation?
There are alternatives to debt consolidation. Each one differs. Whether you want credit card or personal consolidation loans for bad credit UK, options are available. You can think about reducing how much you owe or how much you pay by looking at other products.
One option to consolidate your debts is through a credit card balance transfer. If you have a lot of credit card debt across several accounts, you could potentially combine all this into one amount. If you can find a provider which offers 0% interest – or a low APR – on balance transfers, this could be a good way to consolidate what you owe.
However, this does have some drawbacks:
- Many providers will charge you a fee for moving debts to a balance transfer card;
- A 0% or low interest period is usually an introductory offer. If you don’t clear your debts during this time, you could be charged expensive rates of interest.
- Good credit card offers are only available to people with good credit scores.
If you’ve been putting money into a pension, and you’re over the age of 55, you might be able to withdraw funds from it to repay some of your debts.
In theory, you should be able to withdraw as much as you like. However, this method should be considered a last resort as the more money you withdraw from your pension, the less you’ll have to live on when you retire.
Although a debt consolidation loan is a specialist product designed to help you get on top of your finances, a personal loan could also do the job. However, the problem with this option is that lenders will typically offer the best interest rates and offers to those with excellent credit scores.
It is likely that if you’re already juggling and behind with multiple debts, your credit score won’t allow you access to some of these products. If this is the case a debt consolidation loan will probably offer a better deal than some of the more expensive finance products available to people with less than perfect credit scores.
Can you use a normal person loan to consolidate debt?
It is possible to apply for a personal loan to repay other multiple debts. But some lenders will not let you do this and may have a set list of purposes for the personal loans they approve.
It may also be the case that you would be unable to borrow enough from a personal loan to repay all of your debts. This will depend on your circumstances and credit score. Often personal loans are offered with a shorter repayment term than you would need to repay all the debts you have with an affordable monthly payment.
What debts can’t be consolidated?
There are some types of borrowing which sometimes can’t be resolved through a consolidation loan. Some of the most common include:
- Mortgage and other home loans;
- Certain car finance products;
- Back taxes;
- Court fines.
Although these are a few examples there are many types of debt. If you’re wondering whether a consolidation loan could be used to repay certain types of credit, you should ask us for impartial advice – at no cost – whether we think a debt consolidation loan is the best solution for you.
When not to consider a debt consolidation loan
A debt consolidation loan probably doesn’t make sense if:
- You can’t afford the new loan payments even if they are lower;
- You think your circumstances are about to change in the short to medium term. Think carefully about what is going to change and how it might impact on your ability to repay the consolidation loan;
- You won’t clear all your debts with the loan, particularly the problem ones.
Debt consolidation FAQs
How much does a debt consolidation loan cost?
As a broker who searches the market for the best product to meet your circumstances and needs, the loan available to you is dependent on your provider.
However, because we want to ensure you’re getting a fair deal – and that consolidation is the best option for you – we’ll ensure to make sure your loan is fair, affordable, transparent and suited to you.
What is APR?
APR stands for annual percentage rate. It reflects the interest rate which determines the ultimate cost of borrowing. Under the UK’s financial conduct rules, All lenders must disclose the APR on each product.
When will I have to make my repayments?
The frequency of repayments can usually be agreed with you. The details of your repayments can be found in the policy documents issued by your consolidation loan provider. If you can’t find these, contact the organisation.
When will I get the loan?
You could get the money you need within 24 hours. However, the exact timescale depends on your consolidation loan provider and how quickly the application process is approved.
How do I use a debt consolidation loan?
Once you have the money you need, you use the funds to close accounts with your creditors one by one.
How do I get a debt consolidation loan?
If you have decided to take out a debt consolidation loan then you need to find a lender willing to let you borrow an amount large enough to cover your existing debts.
This may be a bank or building society, but there are also debt consolidation firms that you can contact such as ourselves who offer specialised services.
If you’re worried you don’t entirely meet the criteria for debt consolidation but think this loan would be perfect for you, then all is not lost. Initially, you should speak with one of our advisers and they’ll be able to identify whether debt consolidation is possible.
Chances are, as a broker, we should be able to identify a provider willing to help you.
If you are not currently eligible for debt consolidation, then our advisers can look at the reasons and specify what you could do to change that. Alternatively, they may be able to identify another more suitable solution.
Is a Debt Management Plan a better option?
If you are not in a severe enough situation to have to consider bankruptcy or an Individual Voluntary Arrangement (IVA), then a Debt Management Plan (DMP) might be an option.
A DMP allows you to make smaller monthly repayments. This will be at an amount that you can afford. You may be repaying your debt for longer but the total figure will reduce. Many creditors will stop charging interest once the DMP is set up.
You can set up a DMP yourself. You would begin by drawing up a fair and realistic household budget, then contact your creditors and ask them to consider what you can afford. They do not need to accept your request but they must be fair in making their decision.
You can have a Debt Management Plan managed by someone else. This operates more like debt consolidation and may be suitable if you have bad credit. Charities like StepChange offer this service free of charge.
You will make one monthly payment to a debt management charity. They will negotiate with your creditors and pay them on your behalf. This is a little like having all of your debts in one place and have the benefit of lower monthly repayments.
Debt Management Plans can be significantly cheaper if the companies you owe money to reduce their interest, repayments and charges. They will usually put a hold on your account and this can prevent you from borrowing more money or using your existing credit cards.
A DMP will almost always affect your credit score. This is because you have agreed to pay less than you originally did. You should carefully consider this before you proceed with a DMP as it may make accessing other financial products very difficult for some time.
Where else can I seek advice on my debts?
The Money Advice Service is a government-backed website which lists all of the help available to people in the UK worried about their debts. Whether you want to learn the ins and outs of this loan or know answers to questions like where to get a consolidation loan with bad credit then make sure to visit their site. You can find out how to access other resources here.