Debt Consolidation Loans for Poor Credit

Have you been searching for debt consolidation loans for bad credit direct lenders?

If you want to consolidate but are worried that your credit score is holding you back, there may still be options to explore. 

I uncover some examples of bad credit debt consolidation loans – and some alternative options that could work for you. 

Debt consolidation quick summary

Debt consolidation is when you merge all your debt together, so instead of paying monthly repayments to multiple lenders, you just pay one monthly payment.

At the same time, you might be able to reduce your monthly interest rate and save money. 

So, how does it all work? There are different ways to achieve debt consolidation, but using any method involves taking out new credit.

You take out a new loan, mortgage or credit card to pay off existing debts. Thus, the credit or loan amount must be large enough to repay those debts. 

Once you have made the repayments in full – which may be subject to early repayment fees –  you have consolidated your debt and now only have to make a single monthly payment.

You could consolidate debts and reduce your monthly repayments and make them more manageable, but you may have to pay back what’s owed for a longer period. 

Benefits of debt consolidation 

Some of the benefits of consolidating your debts are:

1. You can do it with secured loans or unsecured loans
2. You might still be able to do it with a poor credit history
3. You’ll only have to make single monthly payments, making it easier to keep track of debt and stay on top of it
4. You might be able to access a lower interest rate but it’s not guaranteed

Drawbacks of debt consolidation:

1. Not everyone is eligible/accepted for a debt consolidation loan
2. You aren’t guaranteed a better interest rate so the total you pay may be more
3. There may be further fees or costs associated with a debt consolidation loan
4. Your single monthly payment may not be affordable

What is a debt consolidation loan?

A debt consolidation loan is a type of loan used exclusively to merge your debts together.

They are available from banks, building societies, a credit broker and online loan lenders. 

You’ll usually need to be a UK resident, be at least 18 years old and have a job to be eligible. Plus, you’ll then need to have your credit score checked.

These loans include interest, just like any other unsecured loan. If approved, the rate you are offered may be different from what is advertised, i.e. the APR representative example.

You should only apply for a debt consolidation loan from a lender that is authorised and regulated by the Financial Conduct Authority (FCA). 

You can also get debt consolidation loans with a bad credit score. I provide some examples later in this guide. 

What debts can I resolve with a consolidation loan?

Debt consolidation loans can be used to pay off personal loans, credit cards, store cards and similar debts. They work if you have done the right calculations.

But I suggest you seek free debt advice from an independent charity before going down this route.

If you only aim to consolidate credit card debts, then you may want to consider a credit card balance transfer instead.

I explain what it involves in this guide! 

How much can I borrow?

The amount you can borrow through a debt consolidation loan will depend on the lender.

Many of the UK banks advertise these personal loans from £1,000 to £25,000 to be repaid over a maximum loan term of five years. But this is subject to change. 

Some online lenders will let you borrow more, while others are capped somewhere between £8,000 and £15,000.

Is it a good idea to get a debt consolidation loan?

A debt consolidation loan could make handling your finances easier with just one monthly payment.

If you can access a better interest rate, then you can even save money on credit and debt repayments.

But that doesn’t automatically mean they’re the best option for you. 

The best strategy to handle your debts is based on personal circumstances. You might get out of debt faster and cheaper using another technique or debt solution.

For a bespoke and personal debt advice service, speak with a UK debt charity or Citizens Advice. 

Debt consolidation and your credit history

Because consolidating your debts requires you to take out new credit, you will be required to make a credit application and have your credit score checked.

The lender you apply to needs to analyse your credit report to see how well you handled money and repayments in the past.

If you have defaults and arrears, they will see you as a greater lending risk and may not offer you the best deal – or they may reject you altogether. 

But all is not lost with a bad credit debt consolidation loan… 

Can I apply for a debt consolidation loan with no credit check?

The Financial Conduct Authority requests that lenders offering personal loans do their own necessary checks on consumers applying for credit.

It is stated that they must ensure applicants are suitable for loans and can afford them, as part of responsible lending.

These checks should include an assessment of personal circumstances, such as income and a credit rating check when applicable.

Debt consolidation loans with no credit rating check do not exist from responsible legal lenders. 

However, some lenders offer to provide free quotes without checking your credit score. This is a preliminary service before the applicant submits a real application.

These quote services can be beneficial in telling you in advance whether you’ll be accepted, but they are not 100% accurate.

Plus, your interest rate may not be the same as the one you received in a free quote service. 

Making a real application can leave a mark on your credit rating, so these preliminary services can be beneficial when shopping around for a personal loan. 

How to get a debt consolidation loan with poor credit

To get a debt consolidation loan with bad credit, you need to look for personal loan providers who will lend to people with bad credit.

This typically means avoiding the big high-street banks with low interest rates and searching for personal loans with online lenders and online banks – but not exclusively.

There’s no winning formula, but looking at lenders who are more likely to lend to people with bad credit will help.

Alternatively, you may want to take some time to improve your credit score before making a personal loan application.

To do this, keep up with monthly payments on existing personal loans and credit cards. And try to reduce your credit utilisation rate if you have a current credit card. 

Another way you could positively affect your credit score is to check your credit record for errors. Sometimes, lenders will mistakenly add defaults to your credit record, which hurts your score.

If you see any mistakes, you can ask for them to be removed, first directly with the lender and then ask the credit reference agency. 

Unsecured debt consolidation loans for poor credit

Below are some examples of consolidation loans for bad credit. They are listed as examples of such providers only and are not necessarily the best loans you should apply for.

They’re also not listed in a particular order.

Always do your research before deciding to apply for a loan, including reading the companies’ latest reviews.

1. Finio Loans

Finion Loans (formerly Likely Loans) offer smaller loans between £500 and £5,000. Many other lenders start their credit at a £1,000 minimum, so they could be one option if you wish to borrow less to consolidate.

They must be repaid within a maximum period of three years. And the current APR representative example is 39.9%.

2. Koyo Loans

Koyo (now managed by Capquest.co.uk) advertises these bad credit loans between £1,500 and £7,500 that need to be repaid over a loan term of five years maximum, which is standard.

3. Pegasus

Pegasus provides bad credit loans for amounts between £2,000 and £15,000. They have some excellent online reviews and state they will put the money into the applicant’s bank account just one hour after approval. Their representative APR is 14.9%.

4. 118 118 Money

You might remember 118 118 as two skinny marathon runners advertising a phone number on UK television. The company has since moved into the financial sector in 2013 and now offers loans, including for those with bad credit. 

They welcome applications for loans up to £5,000 only, with a representative APR of 34% (variable).

5. Solution Loans

Solution Loans is a credit company offering a wide variety of loan products, including unsecured, secured and even guarantor loans (more on these towards the end of our guide).

They specifically advertise their loan products to people with an unsatisfactory credit history, and they can be used for consolidation purposes. 

Their loans are available up to £25,000, just like many high-street UK banks and building societies. They offer a representative APR of 14.3% (variable).

Does debt consolidation hurt your credit score?

Debt consolidation will only negatively impact your credit score if you do not keep up with monthly payments. This is the same for any other personal loan. 

You could damage your rating if you apply for secured loans or unsecured loans too often in a matter of weeks.

This is because lenders leave a flag on your file to say they have received a credit application and are making an assessment, officially known as a “hard search”.

These flags are left to warn other lenders and can be detrimental if too many are accumulated within weeks, as it suggests the applicant may have hidden money problems. 

Alternative debt consolidation options for people with poor credit

If you have bad credit and the debt consolidation loans available to you have higher interest than you need to consolidate effectively, there are other options.

These alternatives are also good if your credit report is stopping you from getting any debt consolidation loan at all. 

Debt Management Plans (DMP)

A DMP is often considered one of the methods of debt consolidation, but it’s not the same.

A DMP is an agreement between you and multiple creditors to make a single monthly payment, which is then split between all creditors proportionally to what is owed. 

DMPs can be negotiated directly, with the help of a debt charity for free, or through a debt management company at a fee.

Some negotiations can get the interest frozen or your monthly repayment decreased. 

They are similar to debt consolidation because you will only have one monthly repayment to make. But they’re not the same because you don’t consolidate your debts.

The benefit is that there is no credit search involved! 

Guarantor consolidation loans for bad credit

Guarantor personal loans could help you achieve debt consolidation with a bad credit score.

These loans must be applied for with a guarantor – the person responsible for making repayments if the main applicant does not make full and timely repayments themselves.

Your credit history may not be as relevant when a guarantor is included.

The guarantor will need to meet set criteria, such as having a good credit rating or even owning their own UK home.

Sometimes, this makes them a type of secured loan. However, you might get a better interest rate with a guarantor loan because you are less of a risk due to the guarantor being responsible for repayments too. 

Other debt solutions

If bad credit is stopping you from accessing a debt consolidation loan, it’s well worth considering other methods of mitigating debt or even writing some of it off. 

We have created this debt solutions page that explains all of the common methods of getting out of debt legally. You could lower your monthly payment or get out of debt with less stress.

As always, speak with a debt charity to get further advice on how to tackle problem debt. 

Poor credit debt consolidation loan help!

Be sure to speak with a debt advice charity before applying to consolidate debts.

Comparing one interest rate against multiple other rates can be confusing. This is especially true when there are many other factors to consider (e.g. fees, terms and conditions, etc.)

The same debt charities can help you figure out if consolidation is the most advantageous method – and could help you make it happen!

Why Many People Can’t Get a Debt Consolidation Loan

Even if debt consolidation would work well for you, there is no guarantee that it is something you can do. The reason for this comes down to your credit file and your credit score.

To use the debt consolidation strategy, you need to apply for new credit to pay off the existing debts.

And when you apply for the credit, you are likely to be subject to a credit history check by the creditor. This is also for your protection and ensures you are likely to be able to pay them back and not fall into more debt. 

The problem here is that you might not have a good credit score, and that could cause your credit application to be rejected.

Thus, debt consolidation is not as accessible as you will have hoped. 

A Word on Credit Scores in the UK

There are three big Credit Rating Agencies (CRAs) in the UK, and they all have different ways of determining your score. 

To make things even more confusing, they don’t even measure the score in the same way. Whereas Experian measures between 0-999, TransUnion measures between 0-710 and Equifax measures between 0-1000.

To understand your score, consult the information on the CRA you are using. 

How to Improve Your Credit Score Before Applying

Debt consolidation is not something that you will plan months in advance.

Often, you experience an unforeseen expense and miss a payment at short notice, meaning you must apply for credit to complete debt consolidation at short notice as well. 

This is an issue because it can take months to improve your credit score and consequently increase your chances of getting the credit you need to complete debt consolidation.

But there is one thing you should do before applying…

You should use a free trial period on Experian and the other credit file sites to look at your file and identify any mistakes.

Sometimes, credit files can include mistakes that wrongfully decrease your score.

By getting these removed, you have a better chance of getting the loan or debt consolidation credit card you need. 

Even though it takes time to improve the credit score, starting early and being consistent can help in the long run.

Don’t Use a Scattergun Application Approach

Another word of advice when applying for loans and credit cards to consolidate debt is to limit your applications.

Trying to improve your chances of getting the credit you need by applying everywhere is not effective. In fact, it can harm your file and increase your chances of rejection.

And that’s why it is best to seek out the best debt consolidation loans for poor credit first!

Can You Still Get a Loan With a Poor Credit Score?

Yes, you don’t need to have the perfect credit score to get a debt consolidation loan.

Because banks and building societies offer personal loans specifically for debt consolidation, they don’t expect your file to be squeaky clean.

Put it this way: You wouldn’t need the debt consolidation loan if you didn’t have debt. 

But it all depends on the creditor and your personalised score. Some credit scores are worse than others, and debtors will need to borrow different amounts. I can’t say for certain who can get what credit ‚Äì and who can’t get any. 

The Best Debt Consolidation Loans for Poor Credit

Debt consolidation loans are available from the big banks and building societies in the UK. I recently reviewed these personal loans in our best debt consolidation loan guide. 

One thing I noticed about many of the big banks is that they make them exclusive to current customers.

For example, if you want a Lloyds, RBS, Barclays or NatWest debt consolidation loan, you will need to hold one of their accounts already, sometimes for at least three months. 

But if you do have one of these accounts, that can be an advantage for people with poor credit. It is often the case that they will assess your situation before conducting a credit file check.

It means they can inform you whether you are likely to be accepted or declined without looking at and marking your credit file. 

Although this doesn’t improve your chances of getting a debt consolidation loan with poor credit, it does prevent you from having to get your file checked if they think you will be rejected.

This is beneficial due to my warning about making multiple applications earlier. If they think you will be rejected, they won’t check your file.

Therefore, you can then apply elsewhere without a recent credit file check visible, which could improve your chances of success.

Other Debt Consolidation Loans for Poor Credit

Other providers of debt consolidation loans which may be more accessible to people with poor credit are:

• Consolidation Express
• Oceans Finance 
• Monevo
• Accepty 
• Buddy Loans (with guarantor)
• Everyday Loans