Debt consolidation loans
A debt consolidation loan allows you to combine debts into one single loan, making repayments simpler and easier to manage.
Representative 48.7% APR
What is a debt consolidation loan?
A debt consolidation loan lets you combine your existing debts, like credit cards or personal loans, into one loan. You make one monthly repayment to a single lender instead of making several payments with different due dates.
This works by using the new loan to pay off your existing debts in full, leaving you with just one balance to repay. People may use debt consolidation to simplify their finances, reduce the risk of missed payments, and potentially get lower interest rates.
Benefits of a debt consolidation loan
One monthly repayment
One of the main benefits is having a single monthly payment to manage. This reduces the chance of missing payments and helps you simplify your finances so you can keep on top of things.
You may get lower interest rates and save money
If you’re able to get a lower interest rate than your existing debts, you could reduce the total cost of borrowing.
Easier to manage your debt
With one loan, you’ll normally have a fixed repayment term, giving you more of an idea of when you’ll be debt-free. By only having one payment, it will be easier to plan your monthly budget.
Better control over your finances
Having everything in one place can make it easier to track your progress and stay on top of your finances. This can be easier than juggling different payments that leave your account at different times.
ClearScore can help you find personal loans:
- From £1,000 to £25,000
- Over 1 to 5 years
- No impact to your credit score
- Personalised offers tailored to your needs
- Know what you'll repay each month and over what term, upfront
Representative 48.7% APR
*Vanquis Bank acts as a credit broker, not a lender, introducing customers to our partner ClearScore. ClearScore acts as a credit broker and not as a lender. If you take out a loan, Vanquis Bank and ClearScore receive a commission payment from your lender. If you’d like further information about the commission Vanquis Bank or ClearScore receive as a result of your loan, please contact us. We will not charge you a fee for our services. Loans can only be offered to customers aged 18 or over. Credit is subject to status. Terms and conditions apply.
How do you consolidate debts?
You can think of a debt consolidation loan as a three-step process:
- Apply for a loan: Start by applying for a debt consolidation loan based on how much you need to cover your existing debts. The lender will carry out some checks and offer a loan based on your personal situation.
- Pay off your existing debts: If you’re approved, you can use the loan to pay off your existing debts.
- Repay one single loan: Now that your old debts are cleared, you have just one monthly payment to your new lender, usually for a fixed term.
Our loans expert says…
“There’s no quick fix when it comes to your credit history, but there are practical steps you can take to get started. Keeping up with repayments and managing your borrowing can really pay off over time. It combines them into one simple monthly payment, making it easier to manage – but it’s worth checking for any early repayment fees before you go ahead.”
Riccardo Coppola, Head of Credit Risk Strategies.
Can I get a debt consolidation loan if I have bad credit?
Yes, you can get a debt consolidation loan even with bad credit. Lenders will usually look at your overall financial situation. This will include your income and ability to repay the loan, rather than just your credit score. This means there may still be options available, even if your credit history isn’t perfect.
It’s important to remember that loans for people with bad credit often have higher interest rates. This is because lenders face more risk. But making repayments on time can help improve your credit profile over time.
Unsecured vs secured consolidation loans
A consolidation loan can be either secured or unsecured.
With a secured loan, you borrow against an asset you own, such as your home. This can allow you to access a larger loan or possibly a lower interest rate. However, whatever you use as security – often your property – could be at risk if you can’t keep up with repayments.
Unsecured loans don’t need any collateral. They’re often used for debt consolidation. You can merge multiple debts into a single monthly payment without risking your assets. But they may have higher interest rates or lower borrowing limits than secured options.
Missed or late repayments on any loan can harm your credit score. Lenders may also take action to recover the money owed, including interest and fees.
Is debt consolidation a good idea for me?
This depends on your individual circumstances. Debt consolidation can be helpful as it keeps you on track with repayments and may lower your borrowing costs. But, if the new loan has a higher interest rate or a longer repayment term, you could end up paying more overall. You may also have to pay an early repayment charge on your existing borrowing.
Unlike a credit card, you’ll need to repay the loan in full through fixed monthly repayments over the agreed term.
Consider other ways to manage debt before deciding. You could talk to your current lenders about repayment plans or get some free independent debt advice.
Taking the time to compare options and understand the terms of any loan can help you make a more informed decision.
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FAQs
Does a debt consolidation loan hurt your credit?
A debt consolidation loan doesn’t automatically harm your credit, but it does come with risks. When you apply for a loan, lenders will usually carry out a hard credit check. This can cause a temporary decrease in your credit score and may be visible to other lenders.
Making regular, on-time payments shows responsible borrowing behaviour. This can help improve your credit score over time. Combining debts can also reduce the number of accounts you’re managing, making it easier to stay on track.
But poor management can have the opposite effect. Missing payments or falling behind could damage your credit score further.
Is there a downside to consolidating loans?
In some situations, consolidating your debts could cost more in the long run. This is often because the new loan has a longer repayment term, meaning you pay interest over a longer period. You may also have to pay early repayment fees on your existing borrowing.
Even if your monthly payments are lower, you may end up paying more overall, particularly if the new interest rate is higher. Unlike a credit card, a loan is less flexible as you’ll need to make fixed repayments each month until it’s fully repaid.
Interest rates can also be higher, particularly if your credit score has dropped since you took out your original loan. This could make the new loan more expensive than your existing debts.
There’s also a risk of building up new debt. If you keep using your credit accounts after consolidating, you could end up owing more than before.
What is the difference between debt consolidation and debt management?
Debt consolidation and debt management both help with existing debt, but they work in different ways.
Debt consolidation involves taking out a new loan to combine multiple debts into one. This leaves you with a single monthly payment, if possible, at a more manageable rate or term.
Debt management helps you manage your debt. It involves making a plan to repay what you owe in a way that’s easier and more affordable.
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