Debt consolidation loans for bad credit

If you have bad credit, a debt consolidation loan can help you improve your credit score and even save you money on repayments.

Can I get a debt consolidation loan with bad credit in the UK?

Yes, you may be able to get a debt consolidation loan if you have bad credit. However, you may be limited in the types of loan you can apply for, and will probably get a higher rate than someone with good credit.

Debt consolidation is the method of combining multiple debts or loans into one. When you take out a debt consolidation loan, you use the funds to pay off your existing debts in full, and then continue to make payments on your new loan.

It’s often used to make your repayments easier to manage and in some cases, can even help you save money on interest payments. If you have bad credit, it can also help repair your credit score if used correctly.

Is a bad credit debt consolidation loan a good idea?

While debt consolidation loans are a useful tool for people looking to manage their debt, they may not always be suitable for those with a poor credit rating. One of the major benefits of a debt consolidation loan is the ability to reduce the cost of your debt by finding a loan with a better interest rate, and therefore, lower repayments.

However, if you have bad credit, you may find your debt consolidation loan options are limited, and the loans you’re eligible for are even more expensive than your current loans. This can make a big difference when it comes to repaying your loan, so it’s important you understand how much your debt consolidation loan will end up costing before applying.

If you take out a loan with a higher rate than your existing loans or debts, you’ll actually end up paying more in interest, and if you then fail to make repayments, you could end up in more debt and do further damage to your credit score.

Will a debt consolidation loan hurt my credit score?

A debt consolidation loan can potentially improve or hurt your credit score, depending on the type of loan you get and how you manage it. While debt consolidation loans can help make your debt repayments easier, it could also hurt your credit score if used incorrectly.

From the perspective of credit reference agencies (CRAs) like Experian and Equifax, a debt consolidation loan is treated much like any other loan. This means you could end up damaging your credit score further if you do the following:

  • Apply for too many debt consolidation loans in a short period of time. If you apply for multiple loans, you could be seen as an irresponsible borrower, especially if you already have bad credit.
  • Take out a debt consolidation loan but then fail to repay your existing loans. Taking out an additional loan and not paying off your existing debt could increase your credit utilisation ratio, which is how much of your available credit you’re using at a given time. This is considered a red flag by CRAs and can hurt your credit score.
  • Fail to make repayments on your debt consolidation loan. According to Experian, your payment history is the key factor used to determine your credit score. Failing to make your repayments on time will therefore have a huge negative impact on your credit rating.

Of course, a debt consolidation loan can also improve your credit score. If you take out a debt consolidation loan that you then use to pay off your existing debt, and make sure you make all your repayments in full and on time, this will be recorded positively on your credit file.

How to get a debt consolidation loan with bad credit

  1. Work out how much debt you need to pay off
  2. Research which lenders will let you borrow enough to pay off your debt
  3. Compare the interest rate offered to those on your existing loans
  4. If the interest rate is manageable, or ideally cheaper than your existing loans, apply for an eligibility check on the loan
  5. If you’re eligible, apply for the loan
  6. Once your loan has been approved and funded, use the funds to pay off your existing debts
  7. Continue making regular repayments on your new loan until it has been paid off

Types of debt consolidation loan for bad credit

  • Unsecured loan. Depending on your credit score, you may be able to get an unsecured personal loan to cover your existing debts. However, you may be limited in how much you can borrow and may receive a higher rate, especially if you have bad credit.
  • Secured loan. If you own equity in your house, or have another asset you can use as collateral, you may want to consider a secured loan to consolidate your debt. A secured loan is seen as less of a risk to lenders, meaning you’re more likely to be approved, even with bad credit. You’ll also likely be offered more competitive rates and a higher loan amount than you would on an unsecured loan.
  • Guarantor loan. A guarantor loan represents less risk for the lender, which will improve your chances of getting a loan. If you have bad credit, a guarantor may also help you get more favourable loan terms.
  • Money transfer credit card. A money transfer credit card is similar to a balance transfer card, but lets you move money from your card into your bank account. You can then use this money to pay off your existing debts, and then pay off the balance on your card. However, you may find it hard to get a credit card if you have bad credit, and will also likely need to pay a fee to move the funds. You’ll also need a card with a high enough credit limit to cover your existing debts.

What credit score do I need to get a debt consolidation loan?

There is no minimum credit score that you’ll need to get a debt consolidation loan, but if you have bad credit, you many find that the loans you’re offered are even more expensive than your existing loans, which means you’ll end up paying more over time.

Late repayments can cause you serious money problems. See our debt help guides.

Frequently asked questions

We show offers we can track - that's not every product on the market...yet. Unless we've said otherwise, products are in no particular order. The terms "best", "top", "cheap" (and variations of these) aren't ratings, though we always explain what's great about a product when we highlight it. This is subject to our terms of use. When you make major financial decisions, consider getting independent financial advice. Always consider your own circumstances when you compare products so you get what's right for you. Most of the data in Finder's comparison tables has the source: Moneyfacts Group PLC. In other cases, Finder has sourced data directly from providers.

More guides on Finder

  • When will interest rates come down in the UK?

    Some of the UK’s brightest minds in economics and property share their interest rate predictions ahead of the next Bank of England base rate meeting.

  • Lenders that use Open Banking 2024

    Learn more about how Open Banking works and how it could benefit you.

  • 999 credit score but refused a loan?

    Learn more about what you can do if you’ve been refused a loan with a 999 credit score.

  • How to refinance your personal loan

    Paying too much in interest? Find out how you could save hundreds or even thousands by refinancing your personal loan to a lower rate.

  • What documents do you need to apply for a personal loan?

    Applying for a personal loan should be a stress-free experience. Here’s what lenders need to verify your income, employment, identity and more.

  • What can you use a personal loan for?

    From renovating your home to consolidating debt, discover different situations where a personal loan might help.

  • Season ticket loans

    With ever-rising public transport costs, it’s more important than ever to find the cheapest way to fund your commute. Here’s how to weigh up the options and find what works for you.

  • Compare joint loans

    Taking out a joint personal loan is a major commitment, but one that could help you to borrow larger sums at competitive rates.

  • Loans for an engagement ring

    Want to pop the question but worried about what it’ll do to your bank account? We’ve got the guide to ease your worries so you can focus on finding the perfect ring.

  • Repaying a personal loan early

    If you have a personal loan and you want to make overpayments or simply pay it off in full ahead of time, you’re protected by the Consumer Credit Act. Here’s what you need to know.

Go to site