If you have ever found yourself in debt, you’ll know only too well just how hard it can be to get out of the cycle. But when you have multiple debts, paying them off can seem nigh on impossible.
Have you thought about consolidating your debts and paying them off in a oner with a debt consolidation loan?
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The term “debt consolidation” means bringing together all your existing debts into one place, which can be helpful to know exactly where you stand with all of your payments.
A debt consolidation loan is a single loan that combines all your existing debts into one lump sum, which can help make your repayments more manageable.
These are often secured loans, meaning that they are secured against something of value that you own like a property or vehicle. Secured debt consolidation loans are often good options for people with existing debt and a bad credit score who have limited options available to them.
Just like a normal secured loan, you’ll agree on realistic monthly payments with the lender so that you can get on top of your debt in a timely and achievable manner.
But how do they work and should you take one out? Here we’ll look at how debt consolidation loans work, how much they cost, plus who is the best lender for this type of loan.
Am I eligible for a debt consolidation loan with bad credit history?
If you have a poor credit rating, there’s a good chance you won’t be able to get a standard unsecured loan. This is because lenders often consider your credit rating as an indication of whether you’re likely to repay the money they lend you.
If your credit rating is poor, then they may not think that you are a good bet and therefore are less likely to offer you a loan. However the same is not true for all loans, like secured loans which are often offered regardless of credit history, and debt consolidation loans, which are designed to help you get out of the debt cycle.
If all goes well, however, you could find yourself with lower monthly payments on all of your debts without having to put extra money towards them each month!
Secured debt consolidation loans
In order to take out this type of debt consolidation loan, you must be able to prove your income and assets at the time of application, regardless of your credit history. You’ll need to have a good understanding of your finances as well as the ability to afford the payments that will come with the loan, but the lender should discuss this with you at length.
The reason why your credit report won’t be taken into much consideration with a secured loan is that the money borrowed will be secured against collateral that you own.
This is usually a property but can be cash savings, a car or boat, artwork, jewellery, or anything of value that the lender can repossess in the event of you defaulting on your payments. This won’t happen overnight, but it’s best to let your lender know if you think you’ll be late on a payment at your earliest opportunity.
You can typically borrow up to 80% of the value of the collateral, so make sure that in the case of a secured debt consolidation loan that this value is more than the total existing debts.
Unsecured debt consolidation loans
An unsecured debt consolidation loan is usually aimed at people with a good credit rating, because the loan is not secured against any collateral and therefore the lender is at a higher risk of losing their money should the borrower default on their payments.
Unsecured loans are offered based on your financial activity like your income and length of time you’ve held your job, your credit rating, and any savings that you might have.
If you’re unsure of what the right loan type is for you and your financial situation, it’s best to speak to a specialist to compare debt consolidation loans before committing.
Not all lenders are transparent and some might have hidden fees and clauses in their contracts. If possible, try and get the opinion of someone that is not a lender too, to ensure completely impartial advice.
How can I improve my credit rating?
If you’re suffering from the effects of a poor credit history, you should know that there are a few things you can do in order to improve it. Surefire ways to boost your credit score include making sure that you pay all of your bills on time, and keeping any outstanding balances on your accounts as low as possible.
If you have several loans and you don’t want to consider a debt consolidation loan, working out if paying off one of the loans first before moving onto the next one might be a more effective option. Interest rates on loans vary, but one thing that they certainly don’t do over time is get any lower.
If possible, try to use less than 30% of each of your card’s available balances. This will allow some breathing space to build up some positive payment history without overextending yourself by using more than 80% of the limit at any given time.
You may also want to consider getting a secured loan as an alternative option if you don’t qualify for a non-secured loan due to bad credit. Secured loans require collateral such as a car or house title but offer lower interest rates than unsecured credit cards and personal lines of credit (sometimes referred to by lenders as PLOC).
What does a debt consolidation loan do?
A debt consolidation loan is effectively a type of personal loan that helps you pay off your existing debts by putting them in one place, which is known as consolidating debt.
This means that the money that you borrow is used to pay off any previous loans, bills, credit card debt or anything else that you’ve been struggling to pay.
You’ll make one monthly payment instead of paying multiple bills, which can save you time and effort instead of managing multiple accounts and paying separate companies one by one. Instead, you’ll just pay the agreed amount once a month directly from your bank account.
It’s a good option if you have several existing loans or high-interest rates on those loans because it can save you money in the long run by reducing or eliminating the interest fees paid each month.
A debt consolidation loan is useful if:
- You are struggling with multiple bills and want to simplify them into one monthly payment
- You’re looking for a lower interest rate than what you are currently paying across the multiple loans that you have outstanding
- You don’t have a strong enough credit history to take out a conventional loan, but do have the income to pay off your debts
Will a bad credit debt consolidation loan help me?
It’s all down to your own personal circumstances, but in general debt consolidation loans can be a good way to pay off your debts and make them easier to manage.
If you’re looking for an option that will allow you to get out of debt faster, with lower monthly payment and less hassle and stress, then it’s probably the right option for you.
It’s never too late to start taking care of your finances and getting into the right financial position, and a debt consolidation loan is just one way of doing that.
But, it’s important to understand that it can’t solve all of your financial problems overnight, you still have the same outstanding debts to pay from other lenders, you’re just paying it to one lender who has offered you a consolidated loan.
Are debt consolidation loans for bad credit a good thing?
Of course this question comes down to a matter of opinion as well as what suits your own personal circumstances. Some companies will say that debt consolidation loans hurt your credit score, but this is usually the ones that want you to keep paying off your debts with extortionate interest rates.
Additionally, people who apply for these types of loans already have a poor credit history, which is why they’re sometimes referred to as bad credit loans, so they aren’t concerned about their ratings as much as they are about clearing their debts.
People who are struggling with making their loan repayments can opt for this type of loan to consolidate debt that’s already outstanding, and it can be a way out of debt for a lot of people.
If you’ve ever looked at all of your debts and said to yourself “I wish all my debts were in one place”, then a debt consolidation loan will most likely be a great option for you to take.
How much will a debt consolidation loan cost me?
The exact cost of your debt consolidation loan depends on the interest rate, which is typically set at somewhere between 5 and 18%. However, it is more likely that personal loans for particularly bad credit will come with rates somewhere in the region of 12-20%.
While this may seem high at first glance, keep in mind that the interest rate is personal to you, and is an average based on many different factors like your credit score, income, and the total amount of your other debts. At Believe Loans our interest rates start as low as 3.99%, and you can use our free quote service to get an instant rate offer.
With most debt consolidation loans, you will likely be charged a fee for setting up the loan, due to the legwork that the lender has to do to consolidate all of your debt into one place.
In some cases, this figure can seem quite high, but don’t be fooled by lenders who offer zero-cost set-up fees for your consolidation loan! Most likely they’ll have just incorporated that expense into your monthly repayments, hidden as your interest rate.
If you’re finding it hard to figure out the overall cost of the bad credit debt consolidation loan that has been offered to you, multiply the monthly repayments by the loan term to get the figure.
What would the monthly repayments be?
The monthly repayments on a debt consolidation loan are based on the amount you borrow and the interest rate. If you borrow more money, then your monthly payments will usually be lower. However, if you can only afford to borrow less money and don’t want to stretch yourself too far financially, then this might not be an option for you.
You can use an online calculator to work out how much your monthly payments would be if you took out a certain amount of borrowing and at what rate of interest. Another option is just collecting quotes from different lenders to see what options are available to you.
As well as showing them your financial situation, you’ll usually only also be required to show proof that you’re a UK resident in order to get a quotation for a loan amount and expected monthly repayments.
If you have missed payments in the past or have had previous bad credit, it’s likely that lenders will consider this when deciding whether they want to lend you money.
This is why it’s important not just to get good advice before applying for any kind of credit but also before applying for different types of loans such as personal loans or overdrafts with banks.
Who is the best lender for a loan to consolidate my debts?
You should compare the interest rates and fees, repayment period, and customer service of different lenders before considering taking out any sort of consolidation loan. You’ll want to know what the loan providers are expecting for one monthly repayment and make sure that this isn’t expected to rise higher than at the rate of inflation.
It’s also important to check the loan-to-value ratio if you have collateral to secure your loan against. For example, if you need to borrow £10,000 to pay off your debt and your property is worth £200,000, then your loan-to-value ratio will be 5%. Some lenders might ask you for this figure in the loan application, so it’s good to know in advance.
At Believe Loans we offer interest rates from 3.99% to 23.5% APR and loan terms from 3 years to 30 years, which are some really great offerings with no hidden costs. However, it’s always best to shop around and compare loans to work out your options before committing to any one lender.
We’ve offered secured loans ranging from £10,000 to £500,000, so chances are that we’ll be able to accommodate your needs. Get in touch with our team to see what new loan terms we can offer you today.
Can you negotiate a consolidation loan?
You can try to negotiate with your lenders and ask them for lower interest rates or a longer repayment period, but it’s usually unlikely to work.
This is because a debt consolidation loan helps you get out of a financially problematic situation, and the provider will already have calculated that into the risk they’re taking.
Otherwise, you can always approach a different financial institution that offers consolidation loans. You will have to provide details about how much money you need and why your existing creditors won’t simply reduce their interest rates (or offer more flexible repayment terms).
A debt consolidation loan can help you clear your debts, even with bad credit
Debt consolidation loans can help you clear your debts, even with bad credit. As a consumer, you may have been turned down for a loan or credit card due to past behaviour on your part, which might have been out of your control. This can include late payments and other irresponsible financial decisions.
However, there are some options available that allow consumers to consolidate their debt by taking out one large loan so they don’t have multiple creditors chasing them for money.
If you have bad credit, it can be difficult to get a loan. However, if you want to clear your debts and start afresh with a new loan with one monthly repayment, then it makes sense to apply for a debt consolidation loan.
There are many lenders who offer debt consolidation loans for people with bad credit histories (us being one of them), and there’s a reason why we’ve got such a high customer satisfaction score, so don’t give up hope!
Taking out a debt consolidation loan with Believe Loans could enable you to clear all of the debts that are hanging over your head at once by repaying them over time in smaller instalments.
How It works
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We search our panel of lenders to find the deal that’s right for you
When you confirm your chosen deal, we get your application moving
The money lands in your bank
account – usually within two weeks
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