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Debt Consolidation

Unsecured Debt Consolidation Loan – Complete Guide

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Scott Nelson

Managing Director

MoneyNerd’s founder, Scott Nelson, has a decade of financial industry experience, including 6 years in FCA regulated loan and credit card companies. Troubled by a lack of conscience in the industry, he founded MoneyNerd to give genuine advice to those in debt and struggling financially.

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Janine
Janine Marsh Profile Picture

Janine Marsh

Financial Expert

Janine Marsh is an award-winning presenter and a valuable member of the MoneyNerd team. With a wealth of experience as a financial expert, she's been featured on BBC Radio 4, BBC Local Radio, and BBC Five Live, and is a regular on Co-op Radio.

Learn more about Janine
· Feb 23rd, 2024
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Representative example: If you borrow £34,000 over 15 years at a rate of 8.26% variable, you will pay 180 instalments of £370.70 per month and a total amount payable of £66,726.00. This includes the net loan, interest of £28,531.00, a broker fee of £3,400 and a lender fee of £795. The overall cost for comparison is 10.8% APRC variable. Typical 10.8% APRC variable

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unsecured debt consolidation loan

Are you looking into an unsecured consolidation loan, but aren’t sure where to start? You’re not alone! Every month, thousands of people visit our website looking for answers and guidance on their debt issues.

In this guide, we’ll cover:

  • How to get an unsecured debt consolidation loan with bad credit.
  • How much the loan costs.
  • When you shouldn’t get an unsecured debt consolidation loan.
  • Alternatives to unsecured debt consolidation loans.

We understand what you’re going through, as many of our team members have been in a similar situation, which is why we know how to help you make sense of things. Let’s dive in and learn more about unsecured debt consolidation loans.

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Representative example: If you borrow £34,000 over 15 years at a rate of 8.26% variable, you will pay 180 instalments of £370.70 per month and a total amount payable of £66,726.00. This includes the net loan, interest of £28,531.00, a broker fee of £3,400 and a lender fee of £795. The overall cost for comparison is 10.8% APRC variable. Typical 10.8% APRC variable

Secured vs Unsecured Debt Consolidation Loans – Which is Better?

A debt consolidation loan is basically a loan you can get to pay off all your outstanding debts. 

You may have heard that there are two main types of debt consolidation loans – secured and unsecured debt consolidation loans.

Simply put, unsecured consolidation debt is debt where you don’t have to put up any asset of yours as collateral towards the debt. However, a secured consolidation loan is one where you must put up an asset, such as your vehicle, as collateral. You risk losing the asset if you fail to pay your creditor back.

Which is Better for You?

Let’s look at which type of loan is better for you.

While there’s no single answer to this question, a few indicators can help you decide better.

A secured loan is generally easier to get than a loan that isn’t secured. Also, the borrowing limit is often higher for secured loans so that you can access more money. Lastly, you’ll usually get secured loans at a lower interest rate than their counterpart.

On the flip side, a loan that isn’t secured is more challenging to get than a secured one, but it doesn’t put your house, car, or any other asset of yours at risk.

Also, it may come at a higher interest rate than a secured loan since you’re not putting anything up as collateral.

Consider the Pros and Cons

Both loan types have their advantages and disadvantages.

A few possible advantages of taking out an unsecured consolidation loan include easier debt management and budgeting, the potential to protect your credit score, and the possibility of reduced monthly payments. On the other hand, not everyone can get a debt consolidation loan, you might end up with an increased total repayment, plus there could be additional fees on top of what you’re already paying.

If you’re confident you’ll be able to repay the amount you’re borrowing in time, it might be a good idea to opt for a secured loan. However, if that’s something you’re uncertain of and you don’t want to risk losing valuable assets, go for a loan that isn’t secured.

Change the amount you are looking to borrow to see what offer you could get

£

Lender

APRC

Monthly payment

Total amount repayable

United Trust Bank Ltd

6.34%

£219.34

£26,320.83

Pepper Money

6.86%

£220.24

£26,429.17

Together

7.99%

£222.20

£26,664.58

Selina

8.45%

£223.00

£26,760.42

Equifinance

9.95%

£225.61

£27,072.92

Evolution

10.2%

£226.04

£27,125.00

Spring

10.5%

£226.56

£27,187.50

Loan Logics

11.2%

£227.78

£27,333.33

How to Get a Debt Consolidation Loan with Bad Credit?

Okay, so let’s say you have bad credit and need to borrow a debt consolidation loan. What can you do about it? Let’s take a look.

1. Keep an eye on your credit score

Your credit score will ultimately decide if you can get a consolidation loan at all and if you can get it at a good rate.

In general, you need to be able to keep your credit score above the minimum threshold required for you to be able to qualify for a debt consolidation loan.

If you don’t know where to start, several banks offer free tools and options that allow you to view your credit report and any adjustments made over a certain period.

2. Don’t limit your options

Even though it can seem like a bad credit score significantly harms your options for getting a consolidation loan, don’t succumb to the pressure.

You don’t have to take the first offer that comes your way, especially if you don’t know how good it is or if you know you can find better. Take your time, search your options, and compare prices, interest rates, and the terms of the loans being offered.

Generally, the best way to do this is online. You can also access several debt help agencies to help you in this regard.

» TAKE ACTION NOW: Compare deals from the UK’s leading lenders

3. A secured loan may be a good idea

If you have bad credit, a secured loan may be your best option.

A secured loan is easy to get and doesn’t rely too much on your credit score as much as a debt that isn’t secured. Moreover, you’ll get it at a lower interest than a loan that isn’t secured, even if you don’t have a good credit rating.

4. Try to improve your credit score

One of the most pivotal things you can do is try to improve your credit score as much as possible. Your credit score will eventually improve when you make regular payments and keep paying on time.

This is important because your credit report is usually the first thing creditors look at when deciding whether or not to give you a loan or when deciding the terms of your loan.

How Much Does it Cost?

The costs associated with debt consolidation loans depend on the annual percentage rate or APR.

Simply put, the APR includes the interest on the loan and any fees your creditor may charge.

Different loans have different amounts of interest plans associated with them.

If you’re applying for a consolidation loan with a variable rate, your monthly payments can be tough to predict, so staying away from such loans is a good idea.

Unsecured Debt Consolidation Loan
Source: MSE Forum.

There’s no cheaper borrowing than interest-free. If you’re struggling to make payments on multiple credit cards, consider shifting the debt to a 0% balance transfer card. This means getting a specialist new card that repays debts on other credit cards, so you owe it instead but at 0%.

Is it a Good Idea to Consolidate Debts into a Single Loan?

It depends.

If you can get a debt consolidation loan at a lower interest rate, consolidating your debts into a single loan may be a good idea.

Debt consolidation can get you much lower interest rates than usual. Debt consolidation loans generally have a lower APR than many other types of loans. If you get the right debt consolidation loan, you may have to pay back a lot less each month than you usually would.

However, if you don’t owe a lot of debt, it’s probably not worth getting a consolidation loan since the processing fees and other associated costs will likely cost you a hefty sum.

Debt consolidations loans for all purposes

  • Stuck paying high interest on credit card debts & loans?
  • Looking for a better interest rate?
  • Stuck with the confusion of multiple repayment plans?

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“This was by far possibly one of the nicest experiences I’ve had getting a secured loan.”

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When is it a Bad Idea to Get a Debt Consolidation Loan?

It’s probably not worth getting a debt consolidation loan if:

  • You’re sure that the amount you owe is so big that a consolidation loan won’t help
  • You won’t be able to pay back the amount of the loan even if it comes at a lower interest rate
  • You have to take out a large personal one that you fear you’ll possibly miss some repayments
  • It may drastically harm your credit rating

If you need advice about consolidating debt, contact an independent debt charity such as National Debtline or StepChange.

They can talk you through the pros and cons and offer you other options that may be more suitable – such as a Debt Management Plan (DMP).

Alternatives to Debt Consolidation Loans

Debt consolidation loans aren’t for everyone. If you don’t want one, or you’re application was rejected, there are alternatives. These include debt management plans, IVAs, balance transfer cards, or bankruptcy. I’ve compiled some useful information about debt consolidation loan alternatives to help you determine the best solution.

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The authors
Scott Nelson Profile Picture
Author
MoneyNerd’s founder, Scott Nelson, has a decade of financial industry experience, including 6 years in FCA regulated loan and credit card companies. Troubled by a lack of conscience in the industry, he founded MoneyNerd to give genuine advice to those in debt and struggling financially.
Janine Marsh Profile Picture
Debt Expert
Janine Marsh is an award-winning presenter and a valuable member of the MoneyNerd team. With a wealth of experience as a financial expert, she's been featured on BBC Radio 4, BBC Local Radio, and BBC Five Live, and is a regular on Co-op Radio.