Can I get a consolidation loan with a bad credit score?
Consolidation loans are quite popular among bad credit borrowers. When you cannot manage multiple debts simultaneously, you merge all of them into a large personal loan, called a consolidation loan. It is not possible to straightaway answer whether you can qualify for consolidation loans with poor credit or not.
There are multiple factors that you need to look at before consolidating your outstanding debts.
Suppose you owe about £10,000 to five lenders, with each about £2,000. As an individual lender, they will be happy to endure the risk that you will not be able to pay back that debt, but no lender would ever like to bear the risk with a single £10,000 loan.
Even though you can pay it now, they will likely assume that you may fall sick or lose your job, or if not unexpected events are concerned, they may doubt that you will use only half of the debt to clear your dues and spend the rest on your other needs.
Consolidation loans could carry a high-interest rate
If a lender approves your consolidation loans, the interest rates will likely be very high.
The higher the interest, the higher the total amount you will pay. Debt consolidation loans for bad credit with no guarantor can be even more expensive than payday loans as there is no rule like putting a cap on the maximum interest rates you can be charged.
How can you get consolidation loans for bad credit at lower interest rates?
If you have racked up debt and now looking to merge all of them into one loan, this will work to your advantage only when you get it at lower interest rates. Here is what you can do to get consolidation loans at lower interest rates:
• Look for guarantor loans
Guarantor loans are aimed at bad credit people who are in dire need of money. This mitigates the risk on the part of a lender, and hence you are likely to get money at affordable interest rates.
If you assume responsibility for the payment by seeking a debt management plan, you will not be able to protect your guarantor from harm.
If you think your guarantor – your spouse or parent – can actually afford to repay the debt and have a good credit score, ask them to take out a loan in their own name. They will get money at a lower interest rate compared to guarantor loans’ interest rates. Then you can pay off that loan. It will not put a lot of burden on your budget.
However, it might not work to your advantage if they do not have a good credit score.
• Secured loans
If guarantor loans cannot work in your favour, you may consider secured loans. When you have got a bad credit score, you might use the equity built in your house as collateral and borrow money. As you take out a secured loan, you will undoubtedly get a consolidation loan at a lower interest rate, but it is still risky.
You are putting your house at risk. Chances are your financial condition becomes worse. For instance, you lose your job and then take a bit long time to land a new job.
In the meantime, if you fail to make payments, your lender will repossess your house. Taking out a secured loan to consolidate your outstanding debts is very dangerous if you are unsure about your repaying capacity.
Only if you are sure about your repaying capacity are these loans recommended.
• Small personal loans
If your consolidation debt amounts to a larger sum, you will face some challenges getting the nod. However, if you need a small sum, no lender will ask you to arrange a guarantor, nor will they ask you to secure it against your property or any other assets.
You can take out small personal loans. It depends on a lender’s policy on how much money they will let you borrow. Mostly, you will be able to get a£1,000 loan from a direct lender without any formalities.
Although these loans are small, you should still be careful. As you have already been facing difficulty in paying off this much money to individual lenders, you may still find it harder to pay it down. Try to apply for these loans only when you are allowed to pay them down in fixed instalments.
Some lenders may ask you to pay off the whole debt in a lump sum.
The takeaway
You can get a consolidation loan with a bad credit score, but it might be expensive. In fact, you will end up paying much more money in total than you would pay separately to individual lenders. If you want to consolidate your outstanding debts with affordable loan options, you may consider secured loans or guarantor loans, but they are also subject to some risks. However, if you need a small sum of money to consolidate your outstanding debts, lenders may approve small personal loans up to £1,000 without needing a guarantor and collateral.
Ailsa Adam is the Editor-in-Chief and former content head at Hugeloanlender. She has been a valuable member of the content strategy team since 2017 due to her abundant experience in the finance sector. Passionate about helping individuals navigate the world of loans and personal finance, she has dedicated herself to acquiring extensive knowledge on various financial products. Before her role at Hugeloanlender,
Ailsa worked as a seasoned journalist and writer, specialising in creating informative blogs and articles on diverse loan types. She is known for her meticulous research and commitment to delivering accurate and engaging content. She holds a degree in MBA Finance and has a keen interest in creative writing and art.
