Debt Consolidation Loans For Bad Credit
Debt consolidation is a debt refinancing technique that can be used to improve your credit score. However, it isn’t that simple to get debt consolidation loans for bad credit since your loan options when you have a poor credit score are limited. Even the ones that are available to you come with relatively higher interest rates as traditional lenders view you as a borrower with high risk.
Fortunately, there are specialized debt consolidators who know how to deal with bad credit borrowers and weigh different factors before lending money to such borrowers.
What is a Debt Consolidation Loan? How Does It Work?
A debt consolidation loan is a loan you take to pay off your existing loans, consumer debts, and other liabilities. The loan is taken if the interest rates are lower than the interest of the existing loans put together, monthly payments are lower, and/or the payoff terms are attractive overall. These consolidation loans can be used to deal with credit card debt, student loan debt, and other kinds of loans.
Debt consolidating could entail varied kinds of financing to pay off liabilities and other debts. If you have multiple payments to make every month and are losing your mind and sleep over keeping track of them all, a consolidation loan can help simplify things for you. It does so by consolidating the different debts into one liability. Payments then go to the fresh debt until the new loan is fully paid.
Guarantors Arn’t Always Required
You don’t always require a guarantor to obtain a debt consolidation loan. If your credit file is bad this may be required though. Visit our guarantro lenders page for more options on gurantor loans.
Direct From Lender
Some of the loans listed on our site are available direct from the lender, so no need to always go through a broker.
Steps to Get the Best Consolidation Loan for Your Needs
Loans to consolidate existing debts are not as hard to come by as they were in the past. But you still need to work on your credit score and borrower status to get access to loans with better rates and other borrower-friendly features.
Keep a Tab on Your Score
Different aspects pertaining to lending money hinge on your credit score. A lower score may not necessarily shut all lender doors, but your costs of borrowing money may go up considerably.
In the UK, there are three agencies that primarily monitor and update borrower credit scores: Experian, Equifax, and TransUnion. These are independent agencies and may use different models and predictors to compute borrower scores. As a result, the scores across the three may not be identical for the same borrower.
For instance, anything below 670 is considered a low Experian score. A score of under 580 is viewed as ‘poor’ in Equifax’s books. TransUnion, on the other hand, categorizes scores and assigns grades to different ranges. Its lowest grade is the letter F, which denotes scores between 300 and 600.
Many lenders and banks have tools in place so that they could know your score beforehand. Know your score and check out the credit history requirements that these debt consolidation loan lenders have listed on their websites.
Do Your Research
When shopping for consolidation loans, you could receive multiple loan offers. Do not latch on to the very first loan offer that falls in your lap. Do your research. Take some time to compare the various loan options from different sources, such as local banks, credit unions, national banks, and online lenders.
Start with online lenders as checking rates online won’t impact your score much. If a traditional lender were to do it for you, you might cause damage to your score. Also, check your existing bank’s loan offerings. If you have always had a great working relationship with your bank, it could willingly overlook your below-average score.
Besides comparing rates, also carefully review and note down the repayment terms, various fees, and some other fine-print items which might affect your total loan expenditure.
Opt for a Secured Loan
Generally, loans for consolidation purposes are unsecured, which means they don’t need collateral. But as there is no collateral requirement, unsecured loans also tend to charge a higher interest rate. If you cannot find an unsecured loan for a relatively cheap cost, consider secured loans.
To borrow money through secured loans, you’ll need a property, vehicle, or any other asset to show as collateral. The asset you declare must be equivalent to or worth more than the loan amount. In case you default on your payments, your bank or lender would liquidate that asset to recover the money.
Since a lender’s risk exposure is lesser with secured loans than with unsecured loans, secured loans are invariably easier and relatively inexpensive to procure.
Work on Your Score
If you have tried all things possible and are not able to find a loan that suits or satisfies your needs, it’s recommended you hold off your new loan plans and work on improving your credit score instead.
You can improve your score by making prompt monthly debt payments consistently over a period. If you have outstanding credit card balances, clear them all to bring down your rate of credit utilization. Consider cutting out all non-essential expenses, such as wine club memberships, meal subscriptions, fitness apps, and redirect that saved money toward debt payments.
Once you get regular with your payments, contact your bank and request a review of your loan application. A few months of regular payments may not significantly boost your credit score, but your bank will be wary of your recent transactions and could get swayed in favor of approving your loan request.
How safe is debt consolidation?
Debt consolidation is a completely safe, legal, and recognized method to borrow money. You just need to ensure you are borrowing money from the right lender and are making monthly payments on the loan without fail.
Does consolidating existing debts hurt your score?
Like all other forms of loans, a debt consolidation loan would initially hurt your credit score. This is because to process any credit application, a lender will have to search your credit record, which will reflect on your report. Not to mention, your outstanding credit would go up and that could also impact your score. But once you start making your loan payments, your credit score would rise from the ashes and likely become better than what it was at the time of application.
Are there consolidation loans available for bad credit?
Barring a few credit brokers and lenders, most money lenders usually have no qualms offering consolidation loans to people with a bad credit score. In fact, there are lenders who specialize in offering loans to people with a tainted credit history.