Debt consolidation is the practice of taking out one large, low rate loan to pay off several smaller, higher rate loans. In certain circumstances, debt consolidation loans can be a sensible and cost-effective way of reducing your outgoings. If you have outstanding credit card balances, where your introductory interest-free periods have lapsed, or if you’ve over-extended yourself by taking out several high-cost short-term loans, then taking out a loan for debt consolidation is often a cheaper solution.
What not to do
If you’re already at the stage where you’ve missed one or more repayments on an outstanding loan or credit card, particularly if it’s a high-cost short-term loan, then taking on even more debt will only make the situation worse. If you do find yourself in this situation then there are a number of options to consider as opposed to borrowing.
Types of debt consolidation loans
There are a number of different lender types that provide loans for the purpose of debt consolidation. Each will suit customers with different credit profiles and circumstances.
Bank loans range from between £1000 and £25,000, with interest rates as low as 3.2% and repayment periods ranging from one to seven years. Every bank loan featured will accept your application with the loan purpose as debt consolidation but you will need to have a good credit rating. You can learn more about bank loans by visiting our bank loans comparison page.
Supermarket loans feature in the comparison table below and are offering debt consolidation loans to customers with good credit profiles. Loan amounts range from £1000 to £25,000 and repayment periods from 1 to 7 years. You can compare supermarket loans side by side using our supermarket comparison table.
Peer to peer lenders
Peer to peer lenders connect savers with borrowers, offering loans to customers with good credit profiles. They’ll accept debt consolidation as the loan purpose and you can borrow from £500 - £25,000. Rates offered will be specific to each individual but can be as low as bank or supermarket loans.
Guarantor lenders offer from £50 - £7500 and offer loans to people with debt consolidation as the purpose. If you’ve got someone who’s willing and able to back your loan application, then a guarantor loan could be a suitable option if your credit history is less than perfect. If your requirements suit that of a guarantor loan then it may be worth checking out our guarantor loans comparison table.
Online pawnbrokers offer loans over £1000 and will accept your application with debt consolidation as the purpose. They’ll value your goods and offer you a loan depending on that valuation. Once the loan is repaid you will get your items back.
If you have your own car that’s less than 10 years old, then a logbook loan is an option to consolidate your debts if you’ve got a bad credit profile. Your car will be secured against the loan. The reason they are called logbook loans is that the logbook (vehicle registration document) is taken by the lender for the duration of the loan term, temporarily resulting in the lender owning your vehicle (learn more about logbook loans).
Each lender will have varying acceptance criteria. However, if you’re applying with a bank or supermarket you will require a perfect credit history. Rule of thumb for practically all lenders is that you must be at least 18 years old, have a UK bank account with direct debit facilities and be able to convince lenders that you are able to meet the monthly repayments.
Debt consolidation loans are a cost-effective way of reducing outgoings, especially if you have a good credit history. However, debt consolidation loans are suited to a very specific set of circumstances. If you have continuing debt which you’re currently struggling to keep up with then borrowing more is not the answer.
You can personalise these results with our loan search.