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Consolidation Loans for Bad Credit
26 Sep 2019

Consolidation Loans for Bad Credit to Clear Off Existing Debt

If you have more than one loan or credit card debt, you might be able to save money by consolidating the debts into one loan. It is also possible to apply for consolidation loans for bad credit and by doing so you can clear off any existing debt, make the monthly repayments more affordable and make life easier.

What Types of Debt Can Be Consolidated?

Not all types of debt can be consolidated so before rushing in to take out a loan it is important that you know which debts can be cleared this way. Debts that a consolidation loan will clear include:

  • Unsecured loans;
  • Payday loans;
  • Guarantor loans;
  • Credit card debt;
  • Store card debt.

What to Consider When Thinking About Consolidation Loans for Bad Credit

Consolidation loans come with many benefits and things to consider. These include:

  • The ability to pay off all other types of credit and have just one monthly repayment to make;
  • Save money if you take out a loan with a lower rate of interest than what you pay on other loans;
  • If you pay off credit cards using a consolidation loan don’t be tempted to rack up more debt on the credit cards you have paid off;
  • Make sure the loan comes with a lower rate of interest than what you are currently paying;
  • The longer you take out a consolidation loan the less you pay each month but the more interest you pay on the loan;
  • Check the loan you are considering for any fees;
  • Check any existing debt to make sure you will not have to pay an early repayment fee to pay off the loan.

The APR on Consolidation Loans

The APR or annual percentage rate is the amount of interest you will pay on the loan over the term of the loan.

If your credit rating is poor, you are not going to be offered the cheapest rate. However, lenders on the panel we work with will offer some of the most competitive interest rates.

Generally, the lower the APR on a loan the less interest is added on and so the less the loan will cost in total.

The Term of the Loan

To keep down the monthly repayments you can spread the loan out over longer. The downside to this is that you will pay more in interest and so the loan will cost you more. It is important to bear this in mind.

You might make the monthly repayments smaller by combining the existing debt into one loan, but if you have to spread the loan out over a longer-term, in total the loan may cost more than had you repaid the debts separately.

Before applying for a consolidation loan sit down and work out how much you need to cover any existing debts and do not be tempted to add extra money on. Only borrow what you really need to clear your debts. You can then use a loan calculator to get an estimate as to how much the monthly repayments will be and how much you might pay in total. You can use the calculator to work out a fine line between total affordability and monthly repayments.

Just One Simple Monthly Repayment

One of the advantages you get by combining all debts is that you do not have to keep track of several repayments.

Life can be confusing if you have direct debits for several debts going out at different times. If you do not have enough money in the bank to cover the repayment, you will be faced with fees, all of which add to the debt.

Once you have consolidated all debt you have just a single monthly repayment to make. This makes life a great deal easier as you only have to budget for the single repayment and make sure enough money is in the bank.

When a Consolidation Loan Will Not Work

A consolidation loan is not going to work in the following circumstances:

  • If you cannot borrow enough money with the new loan to pay off all existing debts;
  • If you are unsure whether you can meet the new monthly repayments;
  • If you would be paying more on the consolidation loan repayments than you spend on all your current repayments;
  • If your current loans have included early repayment fees. In this case you would have to pay a fee to pay off the loan early;
  • If you intend to, or you might be swayed into using your credit cards again and build up credit card debt again.

Secured Consolidation Loans

You might want to give some serious thought into a consolidation loan if you have to take out a secured loan due to your credit rating being so poor.

A secured loan means you would have to put something as security up against the money you want to borrow and this is usually your home. You stand to lose this if you fail to pay off the loan each month.

Guarantor Loans for Consolidation

If your credit rating is very poor, you might struggle to get a large loan on your own. In this case, you might have no option but to consider a guarantor loan.

To take out a guarantor loan you will need to find someone who would be willing to take over the loan repayments if you found them unmanageable. This is not something to be taken lightly and it can put stress on friendships.

Applying for a Loan

You might choose to search for a loan on your own online but there is another option. Allow us to match you with a lender from a large panel of lenders.

Tells us how much you need to borrow and we can search on your behalf. You can check the details of any loan and if happy to go ahead visit the lender and sign up. Lenders offer some of the lowest interest rates along with numerous loan options and fast payout if approved.