Debt consolidation loans

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To find the right deal for you, we compare loans from over 30 lenders[1], including:

[1] Correct as of January 2023.

What is a debt consolidation loan?

A debt consolidation loan lets you pay off debts you have with multiple lenders, then focus solely on repaying a single debt consolidation loan. This type of loan could be an especially good option if you can find one with a lower interest rate, as it could reduce the total interest you’re paying on your outstanding debts.

You can use debt consolidation loans for lots of different types of debt, including:

  • Credit cards
  • Personal loans
  • Store cards
  • Overdrafts
  • Payday loans
  • Medical bills.

Debt consolidation loans come in two forms: secured and unsecured. Before offering you a loan for debt consolidation, lenders will look at your outstanding debt and your credit risk. They may only offer secured debt consolidation loans if you have a bad credit history.

What are the advantages and disadvantages of debt consolidation loans?

Advantages Disadvantages
Lower monthly repayments – spreading the debt over a longer period at a fixed rate means your monthly repayments are potentially more affordable.

Missed payments can damage your credit rating.

Lower APR – debt consolidation loans tend to have a lower interest rate than other types of credit. You might not save as much as you’d hoped – potential savings might be outweighed by additional fees involved in setting up the loan and settling existing loans.
Easier to manage your debt – one payment, made once a month, is easier to track than several. You may lose your home or car – if you can’t keep up with repayments on a secured loan, the asset you put up for security could be repossessed.
Could improve your credit score – as long as you make regular repayments. You’re taking on a new debt – extending the length of your loan means you’ll be paying interest for longer, and it could end up costing you more overall.

Can I get a debt consolidation loan if I have bad credit?

Yes, it’s possible to get a debt consolidation loan if you have a bad credit score or a poor credit history, but your choices might be limited. Interest rates on the loan will probably be higher and the amount you can borrow may be lower.

Your credit score will likely be a deciding factor in how much lenders are willing to let you borrow. They might be prepared to lend you more if you secure the loan against a valuable asset like your home or car. It might also get you a better interest rate. But be aware that if you default on repayments, you risk losing your home.

What are the alternatives to a debt consolidation loan?

Instead of a specific debt consolidation loan, you could use a personal loan or secured loan for debt consolidation.

If you want to consolidate your credit card debts into one card, you could use a 0% balance transfer card and benefit from the zero per cent interest rate. However, if you don’t think you can repay your debt in full before the 0% introductory rate ends, then you should reconsider.

Is debt consolidation right for me?

Before you agree to a consolidation loan, make sure it’s the right option for you. Otherwise, you may end up in a worse situation. For many people, a debt consolidation loan should be the last course of action.

You should look elsewhere if:

  • the loan amount won’t cover all your existing debts
  • your current debts are close to settlement
  • the fees for taking out the loan are so high that they outweigh the benefit of taking out a new loan
  • the fees for paying off your existing loans early are so high they outweigh the benefits of taking out a new loan
  • you can’t afford to keep up the monthly repayments for the length of the loan.

How much does a debt consolidation loan cost?

A debt consolidation loan is intended to pool together your existing debts, so you’ll need to borrow enough to cover these.

The total cost of your debt consolidation loan will then depend on the amount you’re borrowing, the APR (annual percentage rate), which is the total cost of your borrowing for a year, the length of your loan and any potential early repayment fee if you pay off the loan early.

You’ll also need to consider that:

  • interest rates vary according to the size and duration of the loan
  • a longer loan may attract a lower rate of interest, but repayments will be made for longer
  • borrowers with poor credit records will be charged higher rates of interest.

How do I apply for a debt consolidation loan?

Applications are made on the lender’s site. You’ll need to have details to hand, including:

  • all the addresses you’ve lived at for the past three years
  • your email address
  • details of your monthly income and outgoings
  • your bank or building society account details.

What do I need to compare loans?

Use our loan eligibility checker to find out which loans you’re likely to be accepted for. This is only a soft check and won’t impact your credit score.

Just give us a few details about:

  • how much you want to borrow and what for
  • over what period of time
  • your financial circumstances and residential status

We’ll show you a table of suitable loan options listed in the order of lowest APR first – this is the total amount the loan will cost you, including interest and charges. You can check the features of each loan, including which ones allow for debt consolidation.

Author image Alex Hasty

What our expert says...

“Although potentially a last resort, debt consolidation loans can help you manage your debt more efficiently. Make sure you read the small print carefully and check to see if you’ll be charged a fee for paying off your other loans early – as this will affect the savings you’ll make with a debt consolidation loan.”

- Alex Hasty, Insurance and finance expert

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[2] Correct as of December, 2022.

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Frequently asked questions

Can you get a fixed rate consolidation loan?

Yes, debt consolidation loans are designed to take multiple existing debts and combine them into one fixed monthly repayment. The fixed rate available to you will depend on your credit score and history, as well as the amount you’re asking to borrow.

Can I use a personal loan to consolidate my debt?

While plenty of personal loans can be used for debt consolidation, some lenders won't allow it, so check before taking out a loan. When you compare loans with us, you can see if debt consolidation is allowed in the "more details" section of the table.

What is the difference between secured and unsecured debt consolidation loans?

A secured debt consolidation loan is a loan that puts an asset, like your home or car, up as security against the money you’ve borrowed. If you fail to meet your repayments, your home or car could be repossessed.

With an unsecured debt consolidation loan, your assets are not at risk if you fail to make repayments.

Will I need a guarantor to get a debt consolidation loan?

If you have a good credit history, you won’t necessarily need a guarantor to get a debt consolidation loan. However, if you have a bad credit rating or no credit history, a guarantor will offer added security and could increase your chances of getting a loan.

How much do I need to borrow?

With a debt consolidation loan, you should borrow just enough money to pay off your debts. Borrowing more than you need will only add to the cost of repayments and increase your debt.

Do I have to pay off all my debts with the loan?

You don’t have to pay off all your debts with a debt consolidation loan, but the main benefit is that you only owe money to one lender instead of several – so it’s easier to budget, and understand interest and other charges. However, if you have a particularly good interest rate on one of your loans, you may be better off not switching.

Do debt consolidation loans hurt your credit rating?

Taking out any form of credit will initially have a negative impact on your score. However, your credit rating will improve if you make the repayments on time.

What should I do if I’m struggling with debt?

If you’re having difficulties, first talk to your lenders – they may be able to help. You can also get free, expert debt advice. Find a list of free debt advice services on the Money Advice Service website.