Debt Consolidation Loans For Bad Credit

Updated: May 30, 2024 Author:

Key Takeaway: Debt consolidation loans for bad credit may be suitable for those with a low credit score who want to combine multiple loans and credit accounts into a single monthly payment with a lower rate of interest. 

    When you have a poor credit history and finding it difficult to manage your debts – having to make numerous credit repayments every month – you could benefit from consolidation loans for bad credit. Debt consolidation loans can be a better way to make meeting your payment requirements simpler, and possibly reduce how much interest you have to pay. However, they aren’t always the right choice for everybody, so you need to do your research before taking any action.

    What Are Debt Consolidation Loans?

    Debt consolidation loans are an option for all kinds of borrowers, and not only those that have a low credit score. This loan type allows you to move all or some of your current debts from multiple loans and credit cards to a single account. In order to achieve this, you use the debt consolidation loan to pay off the old accounts, which then gives you the option to close them if you wish. Of course, the debt doesn’t disappear, however, it all becomes conveniently kept in a single location.

    Could I Get A Debt Consolidation Loan If I’ve Got Bad Credit?

    Even if your credit score is low, it’s still possible to find lenders who are prepared to offer you a debt consolidation loan to meet your needs. In fact, debt consolidation loans can be helpful for those with a less-than-perfect financial background since they can make it easier to keep track of how much you owe, and to who, in order to avoid accidentally missing payments. (It’s easily done). Some lenders specialise in offering credit to those with a bad credit history, so you should start with them when you want to apply for a debt consolidation loan. 

    What Can I Use A Debt Consolidation Loan For?

    It’s important to note that you should only use a debt consolidation loan to pay off your existing lenders so you can merge multiple accounts into a single line of credit. If you’ve currently got debts over several credit cards, overdrafts, store cards, or personal loans, you could use your consolidation loan to pay these off. You’ll then only have the balance of your single large debt consolidation loan to repay instead of many smaller debts.

    How Do Debt Consolidation Loans For Bad Credit Work?

    If you’re interested in applying for debt consolidation loans for bad credit, your first step is to work out the amount you’ll have to borrow to pay off all of your current borrowing. Add up the outstanding balance left on all of your credit cards, overdrafts, and loans to determine the entire sum you require to cover the whole amount. Once you have this figure, you’ll be ready to make an application for funds to cover that amount. 

    If your chosen lender approves your loan, they’ll pay the money into your account. You then pay your creditors directly from that account, clearing all of your balances and transferring the debt to your newly opened loan account. While this doesn’t reduce your overall borrowing, it does keep all your debt in a single location and is simpler to manage. You may also find that your debt consolidation loan has a lower rate of interest than those being charged by your old creditors, so you could reduce the amount you pay out every month, improving your financial position overall. 

    Of course, it goes without saying that you should make sure that you can comfortably afford the new monthly repayments before agreeing to accept the loan. Making your repayments in full and on time every month is the only way to repair your credit score in the long run. The best way to remember to do this is to set up a Direct Debit from your account to your loan provider so you won’t ever forget to make your monthly payment. 

    What Do I Need To Know About Consolidation Loans For Bad Credit?

    There are a few key things you should take into account when weighing up the pros and cons of the various consolidation loans open to you. These include: 

    • The loan’s total cost – even if your new loan comes with a lower interest rate than that on your current credit accounts, you should still check how much interest you’ll be paying overall. It may be higher in the long term if your loan is over a longer period. 
    • Set-up fees – some lenders charge you a certain percentage of the amount that you’re borrowing as an administration fee when setting up your loan. This will be added to your overall borrowing and must be repaid, too. 
    • Credit score impact – it’s important to be aware that applying for loans and closing your old accounts may negatively impact your credit score. 

    What Are The Pros And Cons Of Consolidation Loans For Bad Credit?

    As with any financial product, there are some advantages and disadvantages that you ought to consider.

    Some of the benefits include: 

    • It makes budgeting simpler since you won’t need to juggle multiple payments and check several statements. Instead, you’ll make just one monthly payment every month on one date. 
    • You’ll have a clearer overview of your debts. By keeping all your debts in a single location, you can see at a glance the amount you owe, the amount of interest your lender is charging you, and how rapidly you’re managing to pay it off. 
    • You may benefit from a lower interest rate. Consolidating debts under a single lower interest consolidation loan may enable you to reduce how much interest you pay on your borrowing. 

    On the downside, you should consider: 

    • Failing to meet your monthly repayments on time and in full can negatively impact your credit score. 
    • Some of the credit agreements you have with lenders that a consolidation loan is being used to repay in full, can see a loan adjustment fee applied for early resettlement.
    • If your consolidation loan is secured on an asset, missing repayments could lead to repossession of the asset used as security.