What's a debt consolidation loan?
A debt consolidation loan is a lending option that lets you combine all your existing debts into one monthly payment.
It could make managing your debts easier, as you don't have to worry about lots of different debts to different creditors.
You can either choose an unsecured personal loan or a homeowner loan.
What's an unsecured loan?
An unsecured loan means you're not putting your valuable possessions like your home or car up as 'security' against the debt.
If you don't keep up with your monthly payments, your credit score will be affected. This could also affect your ability to borrow money in the future.
What's a homeowner loan?
A homeowner loan is a type of secured loan that lets you borrow against your property as security. This means you can borrow money while leaving your existing mortgage in place.
To get a homeowner loan with us, you'll need to speak to one of our broker partners. They'll talk you through the process and help get the right loan for you.
What's the difference between an unsecured loan and a homeowner loan?
Check out the differences between our unsecured personal loans and homeowner loans, so you can see what might be right for you and your budget.
| Unsecured personal loans | Homeowner loans | |
|---|---|---|
| How long you can borrow over | 1-8 years | 3-35 years |
| The minimum you can borrow | £1,000 | £20,000 |
| The maximum you can borrow | £40,000 | £500,000 |
| How to apply | Direct through us | Through our broker partners |
Check out our guide on the differences between secured and unsecured loans for more information.
How to know if a debt consolidation loan is right for you
Check if you're eligible
The first step is to get a quote and see if you're eligible.
You'll be able see what rate you can get for the loan, which can help decide whether it's the most cost-efficient way of paying off your debts.
Make a budget
Before you consider getting a loan, try budgeting and managing your money.
There are lots of useful resources out there to help support with money worries.
MoneyHelper is a good place to start.
Check any early repayment fees on your loans
It's worth checking if there are early repayment fees for your current debt and how much they are.
The cost of this fee might outweigh the benefits of consolidating your debt, so it's worth checking the terms of your agreement.
Explore all of your options
Carefully consider which option is right for you. It could be a loan, a 0% balance transfer card or keeping your finances as they are.
How does a debt consolidation loan work?
Work out what you owe
The first step is to figure out what you owe, and to who.
For example, you might have:
- £14,000 in credit card debt
- £7,500 to pay off on a car loan
- £1,300 on your overdraft
They all have different interest rates, and different terms.
Once you know how much you need to borrow, you need to make sure you can also comfortably manage the new monthly payment.
Pay off your debts
You would apply for a debt consolidation loan that's equal to the total amount of debt you owe.
So, using the example above, you'd apply for £22,800.
The loan is then used to pay off whatever debts you have - for example, credit cards, car loans or an overdraft.
Pay back your new loan
Now that you've paid off your various debts, you only have one monthly repayment to think about.
It's all on the same interest rate, and on the same terms. Plus, you can manage it all in one place.
It's worth noting that your new interest rate could be higher than the interest rates you had on your old loans. Make sure you look carefully at the overall cost of the loan when making a decision if it's right for you.
Representative example
Unsecured personal loan representative example
Here's an example of how much you could borrow, over how long, and how much you'll need to repay.
You borrow: |
£10,000 |
You'll pay it back over: |
60 months |
Your monthly repayments will be: |
£223.43 |
You'll pay back in total: |
£13,405.80 |
This example is based on a representative APR of 12.90% and annual interest rate (fixed) of 12.19%.
Read our guide on APR and interest rates for more context on what this means.
All loans are subject to status. This just means the interest rate and the type of loan we offer you will depend on a few things, including your financial situation.
In some cases, we could refuse to offer you a loan at all.
Interest rates on homeowner loans
The interest rate we offer on our homeowner loans will vary based on your personal circumstances, credit history, and the terms of the loan.
For an example of the amount you'll be charged, please speak to one of our broker partners.
Each quote we give is bespoke and personal to the person taking out the loan.
What can I use a debt consolidation loan for?
There are lots of different ways you can use your loan for consolidating debt. This might include:
Personal loan debt |
If you've taken out other secured or unsecured personal loans. |
|
|---|---|---|
Credit card debt |
If you can't make your repayments on credit cards. |
|
Overdraft |
If you're struggling to get out of your overdraft with the bank. |
|
Store card |
These are a type of credit card that's issued by a specific retailer. |
What are the pros and cons of a debt consolidation loan?
Here are a few of the advantages and disadvantages of taking out a debt consolidation loan, and how they might affect you.
Pros of a debt consolidation loan
- It's easier to manage your debt - you only need to worry about one monthly payment
- You might get a lower interest rate - but remember that if you spread your payments over a long period, you could still pay more interest overall
Cons of a debt consolidation loan
- You could pay more overall - as you're extending the length of your loan, you'll probably end up paying more in interest
- It might take longer to pay off - if the term of your agreement is longer because of everything you need to pay back, it'll take you longer to be debt-free
- You could get a higher interest rate - there is the possibility that your interest rate could be higher than on your individual debts, meaning you'll be paying more overall
Useful guides
Check out our some of our useful guides on all things money and loans.
