How do I get a debt consolidation loan?

When applying to get a debt consolidation loan, there are several factors that can affect whether you’ll be approved. Each lender considers different information to determine your eligibility and there are several steps that you can take before making an application to improve your chances of qualifying for a loan. 

6 min read
Couple researching on internet

What is a debt consolidation loan? 

Debt consolidation is the process of merging multiple debts into one manageable monthly repayment. Depending on your eligibility, you may be able to secure a debt consolidation loan with a lower interest rate or longer loan term (with lower repayments) than your existing debts. However, keep in mind that you may end up paying more in interest overall. 

Not only can debt consolidation reduce the stress of having to deal with several different payment amounts, interest rates, and due dates, but it could also help you pay off your debts faster. 

Debt consolidation loans can be unsecured or secured against an asset like your home. 

Pros and cons of debt consolidation 

Pros Cons
All or some of your debts will be in one place. May not be worthwhile if you have a smaller amount of outstanding debt or terms that are due to end soon. 
It could make your debt more manageable and help you stick to a budget. Your interest rate may increase after the initial rate expires or if it is variable.
You may have a lower monthly repayment (but may pay more in interest over the full term). Your interest rate may be higher if you don’t have a strong credit score.
Your credit score may improve if you keep up with your repayments. Your financial situation could be harmed if you fail to keep up with your repayments.

How does debt consolidation work?

There are typically four stages to getting a debt consolidation loan: 

•    Preparing to apply 
•    Applying for a debt consolidation loan 
•    Using the loan to consolidate and pay off your debts
•    Repaying the loan

Getting ready to apply for a debt consolidation loan 

1. Look at your financial situation

Before applying for a debt consolidation loan, it may be worth taking some time to look at your current finances and consider the pros and cons of the options available to you. If you only have credit card debt, for example, you may wish to apply for a balance transfer credit card rather than a personal loan

When experiencing financial problems and struggling with debt, it can be tempting to ignore the situation. Not checking your bank account and ignoring communications might feel easier in the short-term, but it can put you at risk of more harm over time. Being aware of all the relevant information can help you make an informed decision. 

2. Check your credit score 

A strong credit score can make it easier to secure a debt consolidation loan with a low APR. While it’s not the only factor that lenders consider, your loan eligibility will also likely be affected by your credit score. 

You can check your credit report for free with each of the three UK credit reference agencies. This helps you understand what information lenders can access and allows you to spot and flag any mistakes.  

If you have missed payments in the past and have a poor credit score, you may still be able to secure a loan with a higher APR. But make sure consolidation is still a suitable and affordable choice before proceeding. You can also take steps to improve your credit score for the future. 

3. Compare your loan options 

Several lenders offer debt consolidation loans, each with different eligibility requirements and terms. Before making an application, you can take time to compare the options available. 

Important things to check include: 

•    The proposed APR compared to your existing interest rates
•    The monthly payment amount and whether it is affordable
•    The lifetime cost of the loan 
•    Any additional fees or charges

Am I eligible for a debt consolidation loan?

Each lender may have different eligibility criteria and information that you need to supply, but typically, you’ll need to provide: 

•    Personal details – full name, date of birth, and address history 
•    Employment information – name of employer, occupation, and income 
•    Amount you need to borrow
•    Reason for applying 

Required documentation may include: 

•    Proof of ID – such as a passport or driving licence 
•    Proof of address – such as a utility bill (usually dated within the past three months) 
•    Proof of income – such as recent payslips or bank statements

Using this information, the lender may review your circumstances and perform a check on your credit report.

A soft credit check may be carried out to assess your initial eligibility, followed by a hard credit check when you apply. Only the hard check will be visible to others on your report. 

To qualify for a debt consolidation loan, the lender may also look at your debt-to-income ratio (DTI) to determine how much you owe compared to your current monthly income. 

During your debt consolidation loan term

Depending on the lender and type of debt consolidation loan, you could receive the funds in two different ways: 

•    Funds will be released to you directly and you’ll be responsible for paying off your existing debts 

•    Or funds will be released directly to your creditors 

Once your loan is in place, making the new payments on time could help you to build a strong payment history and may improve your credit score over time. 

How is loan eligibility calculated? 

Each lender calculates eligibility in different ways using different information, including your credit score, current financial situation, and personal circumstances. You won’t always be deemed ineligible if you have a low or poor credit score, as you may be offered a higher APR than you would have been with a stronger score. 

If you’d like to find out whether you will be able to get a debt consolidation loan before applying, you may be able to use a consolidation loan eligibility checker online. These tools can’t guarantee you’ll be approved, but they can give you an indication of whether you will qualify for a loan and what your monthly repayments might look like. 

What happens if I don’t qualify for a debt consolidation loan?  

There are many reasons why a debt consolidation loan application may be refused. But this doesn’t mean you’re out of options. 

You could consider reapplying with a different lender who has different eligibility requirements. At Ocean, for example, we specialise in helping people with poor credit histories. You may also be able to apply for a lower loan amount, which poses less of a risk to a prospective lender. 

There are also other formal debt management solutions available that may be right for you and your circumstances, such as Individual Voluntary Arrangements (IVAs), Debt Relief Orders (DROs), and bankruptcy. 

If you’re struggling with debt, you can access free financial advice and support from a professional debt specialist. Visit Money Wellness, StepChange, Citizens Advice, National Debtline, or Money Helper to find out more. 

Check your eligibility for a debt consolidation loan

  • Reduce your monthly payments
  • Personal and homeowner loans available
  • Getting a quote is FREE and won't affect your credit score
Find my loan

Intelligent Lending Ltd is credit broker, working with a panel of lenders. Homeowner loans are secured against your home.

Disclaimer: All information and links are correct at the time of publishing.