Advantages of a personal debt consolidation loan
- Anyone over 18 years old can apply for a personal loan, you don’t need to be a homeowner
- You can use a personal loan to pay off pretty much any form of debt - this includes credit cards, previous loans or store cards
- They are usually quick to obtain. The money can be in your bank account within 15 minutes of being accepted (depending on the lender and your banks policies)
- Consolidating multiple debts into one repayment per month makes managing your money much easier
- Certain loans will offer a payment holiday option, either at the start of the agreement or for one or two months a year which can be useful for budgeting
- Personal loans are often deemed less risky than secured loans, as no assets can be reclaimed if a debt isn’t repaid. However, bailiff action can be taken on unsecured loans if you get a CCJ which you fail to pay.
Disadvantages of a personal debt consolidation loan
- While you can find personal loans for up to £35,000, most lenders cap the amount lower to make it more affordable to repay. We can help with personal loans from £1,000 to £25,000.
- Interest rates may be higher than other forms of lending - particularly if you have a bad credit history
- You can only borrow for a shorter timeframe than a secured loan, usually up to 5 years
- While you can take a on this type of loan, it may cost you more interest in the long term (as the length of your loan will be extended)
What credit score do I need?
Personal loans are available to everyone over the age of 18 and you don’t need to be a homeowner like you do with a secured loan. We ourselves believe in finding the right option for each individual, which is why we are a specialist for finding lenders for bad credit loans.
The better your credit history, the better deals you’ll be able to access, but this depends on the criteria of each individual lender.
You should always utilise price comparison websites and soft check facilities beforehand. This way you won’t damage your credit score before you apply.
Do consolidation loans hurt your credit score?
Any credit application, whether successful or unsuccessful, damages your credit score in the short term. All hard searches are recorded on your file and make a dint, but making payments on time, each month can recover this.
If you make too many applications in a short space of time, lenders may interpret this as you mismanaging your finances, which may put them off lending you further funds.
Beyond this, a debt consolidation loan can actually improve your credit score. If you meet your contractual commitments on time, every month, you will see an improvement over time.
It’s important when taking out a debt consolidation loan that you make sure you are able to keep up the contractual terms from start to finish. And also that you don’t rack up further debt while paying it off. If you end up with more debt and/or miss payments this can further damage your score.
Want to boost your credit score? Check out these 45 ways to do so.
What should I do if I have a lot of debt?
Personal debt consolidation loans are usually an option for people with debts of around £1,000-£12,500. Whilst it’s possible to get a personal loan in excess of that it's normally only if you have a higher income, so you may need to explore alternative options.
If you’re a homeowner and there’s equity in your property, you may be eligible for a secured loan. This is a loan that is secured against your property, which offsets the risk to the lender. In return, you can borrow larger sums of money over a longer timeframe and potentially get a more affordable APRC. Head here for more information on secured loans.
If you feel your debts are spiralling out of control and debt consolidation isn’t an option, it’s time to seek help. There are charities available, such as Stepchange and Citizens Advice, who can offer free non-judgemental advice. They will talk you through the potential options such as debt management plans.
Are they the only option?
There are other ways of consolidating debt, these include a balance transfer card and secured debt consolidation loans.
Balance transfer credit cards are good if your debt is credit card based, particularly if you can secure a good introductory offer of 0%. These are usually only available for people with good credit histories. The introductory offer is usually replaced by quite a high APR when it ends. You will also need to pay a transaction fee, usually around 3-5% of the balance.
If you are a homeowner, you can also consider a secured debt consolidation loan. You’ll generally be able to borrow more, over a longer period of time - but secured loans do come with additional risks as they’re tied to your home.
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Intelligent Lending Ltd is a credit broker working with a panel of lenders.