How do I get a debt consolidation loan?

The process of getting an unsecured debt consolidation loan is similar to getting a personal loan. Before you apply, though, you must be sure you can commit to the monthly repayments. Missing a single repayment can affect your credit score, which may affect your ability to get credit in the future.

6 min read
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Is it easy to get a debt consolidation loan?

As with all loans, the ease with which you will be approved for a debt consolidation loan depends on your individual circumstances, your credit history, and the lender’s criteria. If you have a good credit score, it should be easier for you to get a debt consolidation loan, as you’ll come across as low risk to lenders.

While it’s still possible to get a debt consolidation loan if your credit score is low, you’re likely to find it more difficult. And if you are accepted, you may be offered a low sum with a high interest rate.

Can I get a debt consolidation loan? 

As a debt consolidation loan allows you to merge all of the money you owe to different lenders into one place, it may be suitable if you: 

  • have multiple debts that you’re repaying at the same time
  • are looking for a way to make your debt more manageable
  • can commit to the monthly repayments for the duration of the loan term

There are two types of debt consolidation loan, secured and unsecured:

1. Secured debt consolidation loans require you to secure the loan against an asset you own, such as your home. This asset can then be used as collateral in the event that you are unable to repay your loan.

2. Unsecured debt consolidation loans are not secured against any of your assets, so there’s no risk of losing your home if you can’t make your repayments.

Secured debt consolidation loans can be easier to get as securing the debt against an asset reduces the risk for the lender. If you owe a large amount of money, or have a poor credit history, you may be more likely to be approved for a secured loan.

However, it’s important to remember that this type of loan comes with the risk of losing the asset it’s tied to if you’re unable to repay it. So, you need to make sure you can commit to the monthly repayments before applying.

What is the criteria for a debt consolidation loan?

Different lenders have different criteria for debt consolidation loans. Several lenders may specify that you have to have a guaranteed annual income, but where some may say it has to be over £7,000, others may say it has to be over £15,000, for example.

Here are some of the most common criteria  you can expect to see for a debt consolidation loan: 

  • you’re able to make repayments by direct debit
  • you’re 21 or over and live in the UK permanently
  • you have an existing current account
  • you haven’t been declared bankrupt or had a CCJ
  • you have an annual income

Please note, these are just examples of lending criteria and are not specific to or indicative of any particular lender. 

How to get a debt consolidation loan 

Getting a debt consolidation loan can help to make your debt more affordable and manageable. Here’s a step-by-step guide to getting one if it’s suitable for you.

1. Make sure your credit report is up to date

Before you apply for a debt consolidation loan, it’s important to make sure your credit report is up to date. Lenders will look at your report when calculating your eligibility for the loan, so doublecheck the information it contains is accurate before you apply.

You can check your credit report online using the three main credit reference agencies in the UK: Experian, TransUnion and Equifax. You can also check your Equifax credit report for free (for life) through CredAbility.

If you need to update your personal information, you can do this by contacting your creditors. They send regular information to the credit reference agencies. As long as your creditors have up to date information, it will be reflected in your credit report.

2. Calculate your budget

The next step is to calculate your budget. First, make a list of the debts you’d like to consolidate (including interest), so you know exactly how much you’ll need to borrow to repay them in total. Remember to consider any additional charges that may apply, like early repayment fees. You’d need to ask your current lender if this is applicable.

Then, make a list of all your income and outgoings (not including the debt repayments you’re looking to consolidate). This will help you work out how much you have left each month after you’ve covered all of your expenses.

It’s an essential step as it’ll enable you to figure out what monthly repayment amount would be affordable, sustainable and fit within your budget.

You may even get the bonus of finding some payments you can cancel or reduce (accidental subscriptions are a big drain on budgets!).

3. Compare debt consolidation loans

Once you have an idea of how much you can afford to repay each month, you can move on to looking at some of the available debt consolidation loan options. As we mentioned above, your options will depend on your personal circumstances and the lender’s criteria.

When comparing debt consolidation loans, you need to consider three main factors:

  1. the total cost of borrowing (known as the Annual Percentage Rate, or APR)
  2. repayment period
  3. monthly repayment amount

All of these factors are interdependent. So if, for example, you extend your repayment period, your monthly repayment amount will go down, but the overall interest you pay will go up.

The general rule of thumb is, the shorter your loan term, the less interest you’ll pay overall – so while lower monthly amounts may seem tempting, they’ll cost you more in the long run.

Once you find a loan option that looks suitable, you can find out how likely you are to be approved using an online eligibility checker. Unlike an application, this tool only uses a ‘soft search’ - so it won’t affect your credit score. 

4. Apply for a consolidation loan

While eligibility checkers can’t guarantee your acceptance, they will give you a fairly good idea of whether you’ll be accepted. This is important, as making too many applications at once will have an impact on your credit score – whether you are accepted or rejected.

When you’re ready to apply, make sure you have all the required documents to hand (this may include proof of identity, address and income). Be sure to thoroughly read all the small print. This will include information on late repayment charges and any other possible fees, as well as other details.

5. Pay off your existing debt with the loan

Once the loan amount has been paid into your account, use it to pay off your existing debts. It’s important you do this as soon as you can, so you’re not tempted to spend it on something else. Plus, the longer you leave it, the more interest you’ll accruing on your existing debt in the meantime. 

How can I increase my loan eligibility? 

If your credit score is low and you’re looking to build it up to increase your loan eligibility, there are multiple ways to do this:

  • update your details – as we mentioned earlier, it’s essential to make sure your credit report is accurate, so take a look and fix anything that doesn’t look right
  • register to vote – lenders check the electoral roll to carry out identity checks, so getting on it is a great way to increase your eligibility
  • don’t make multiple credit applications – each time you apply for credit, it temporarily lowers your credit score, and if you keep applying, it’ll impact it for longer
  • check your joint finances – even if you no longer share finances with someone with a poor credit history, but you once did, it can still affect your eligibility. There are ways to stop this from happening, such as asking credit reference agencies to put a notice of disassociation on your file

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