Debt consolidation loans are personal loans used to discharge multiple debts. When you have multiple debts to settle, and they are difficult to keep up with, you can take out a personal loan to pay them off. Now you will have only one personal loan to settle.
- Consolidation loans generally include short-term lump sum loans. Instalment loans like mortgages and car loans cannot be consolidated.
- If you have credit card debt, you will need to apply for a 0% balance transfer card. Personal loans do not consolidate credit card debt.
In order to consolidate existing debts, you must have a good credit score. If your score is not up to scratch, lenders will generally repudiate your application. Here are some important facts that you must know about consolidation loans:
- Consolidation loans cannot be large. Most lenders will not consolidate more than £1,000.
- You must have a good credit rating.
- They charge high interest rates.
- Consolidation is not a solution to your debt problems.
- Consolidation loans do not require a guarantor, and hence they are also called consolidation loans with no guarantor.
- Even if your credit rating is poor, you cannot secure it against your assets.
What are the merits and risks of consolidating debts?
Here are the benefits and risks of debt consolidation loans for bad credit in the UK with no guarantor:
| Benefits | Risks |
| Consolidation loans simplify payments. Instead of paying off the debt in a lump sum, you would be paying it back in fixed instalments. | You will need discipline to avoid accumulating debt. You will have to discharge the 0% credit card debt within the introductory period to avoid hefty interest. |
| It lowers the interest rates if you manage to qualify for them. You must have a good credit score to be eligible for competitive interest rates. | Your poor credit score will result in rejection. Some lenders may consider your application, but they will charge high interest rates. |
| Since you know how much money you would pay down every month, you can easily fine-tune your budget. | There is still a high risk of falling into debt if you fail to pay it off on time. |
| There is a lower probability of falling into debt. | Extended repayment term will increase the total cost of the debt. |
Top lenders offering consolidation loans with no guarantor
Here are the top UK lenders offering no-guarantor consolidation loans:
- Santander
Santander is the most prominent lender in the UK offering consolidation loans. Here are the features of consolidation loans from Santander:
- You will save money if you qualify for lower interest rates. This is specifically possible if your credit score is up to snuff.
- Monthly repayments will remain fixed, so you can easily manage payments.
- Santander never guarantees that consolidation loans will reduce the total cost of borrowing.
- Santander consolidation loans will be discharged in 1 and five years.
- The maximum APR is 29.9%.
- Your credit score must not be poor to qualify for Santander consolidation loans.
Before you apply for consolidation loans from Santander, you must ensure that you do not struggle with repayments.
- Barclays consolidation loans
Barclays will let you borrow up to £15,000 to be paid down over a period of two to five years. You will get quick access to money using the Barclays app. You must bear in mind that Barclays consolidation loans are subject to financial circumstances and borrowing history.
There is no doubt that you will struggle to qualify for these loans if your credit rating is less than perfect. You cannot get money without an affordability check. Barclays would want you to have a strong repayment capacity.
- 24CashFlow
24CashFlow will let you consolidate your existing debts if you are struggling to repay them. Your credit score must be good to qualify for lower interest rates. However, 24CashFlow lets you consolidate debts even if your credit score is poor.
You do not need to secure these loans, nor do you need a guarantor. The maximum amount you can borrow largely depends on your affordability. The approval is subject to your repayment capacity and current financial condition.
- Interest rates are lower for those with good credit scores.
- Instalments will remain fixed, so you can easily manage your budget.
- There is no risk of falling into debt.
- The total cost of consolidation loans could be high if your credit rating is not up to scratch.
What do you need to qualify for consolidation loans?
In order to be eligible for consolidation loans, you must meet the following terms and conditions:
- You must have a good credit score. Even though some lenders provide subprime consolidation loans, too, a decent credit rating improves your chances of being accepted.
- You must demonstrate affordability. Your budget should have the potential to pay back the debt without struggling with other essentials.
- The approval is subject to personal creditworthiness. No guarantor or security is required.
Key considerations before applying for consolidation loans
Here are the key things that you must consider at the time of applying for consolidation loans:
- You should look at APR rather than interest rates. The former includes fees and associated charges, too.
- Make sure that you compare APRs between lenders. The lower the better.
- Be careful while choosing an extended repayment term. The longer repayment term will increase the total cost of the debt.
- Some lenders also charge early repayment fees if you try to settle the loan before the scheduled time.
- Some lenders claim to provide soft credit checks, but the fact is that no responsible lender can offer you money without running hard credit checks.
Tips for borrowers
Here are some tips you should follow when it comes to borrowing money:
- You should compare multiple lenders and choose the one with the lowest possible APR.
- Check the affordability loan calculators to ensure you do not borrow more than you can repay.
- Avoid lenders who claim to provide loans with soft credit checks. You will most likely end up with high interest rates. Responsible lenders carefully scrutinise your repayment capacity.
- Consolidation is only effective when you turn over a new leaf.
The bottom line
Consolidation loans will let you combine all your existing debts into one large personal loan that you pay down over a period of time. Top lenders that offer consolidation loans include Santander, Barclays, and 24CashFlow.
When using these loans, make sure that you have the potential to repay the debt on time and meet the approval criteria.
