Debt Consolidation Loans for Bad Credit

Cashflex has put together a guide to debt consolidation loans, including the answers to some important questions, such as:

• What is a debt consolidation loan?
• Do bad credit debt consolidation loans exist?
• Is a debt consolidation loan a good idea?

The information in this article is intended to help you make an informed decision based on your financial circumstances and should not be considered financial guidance.

Before you search for a debt consolidation loan

Whatever your credit score, debt consolidation should be approached with caution. When doing your research, you may wish to seek advice from a debt management charity, such as StepChange. You can access a range of information on their website, or if you prefer, you can reach out and speak to one of their trained advisors either on the phone or via the online contact feature. Please refer to StepChange’s website for their contact centre opening hours.

Support provided by StepChange is free and confidential.

What is a debt consolidation loan?

A debt consolidation loan is a sum of money borrowed from a lender, which is then used to pay off existing debt(s).

Someone with multiple debts might find it more manageable to combine them into one single sum and make just one repayment a month. This could also help them save money on interest. When considering this option, they should make sure that the interest rate on the debt consolidation loan is lower than that of their existing debt(s).

A debt consolidation loan could be used to pay off different types of borrowing, including credit card(s), payday loan(s), and personal loan(s).

How do debt consolidation loans work?

Typically, someone considering a debt consolidation loan would:

1. Make a note of all their debt(s) and work out the interest they’re paying on each.

2. If they have more than one active debt, they would then combine the total amount owed. This is the amount of money they’ll need to borrow to consolidate their debt.

3. When searching for a debt consolidation loan, they should pay close attention to the Annual Percentage Rate (APR). This reflects the overall cost of borrowing. If the APR on the debt consolidation loan is lower than their existing debt(s), then this might be a product they consider applying for.

4. If their application is approved, they’ll repay the debt consolidation loan in monthly instalments until the balance has been cleared.

If you’re considering searching for a debt consolidation loan, you should never apply to borrow more money than you need or can afford to repay.

Could taking out a debt consolidation loan affect your credit score?

Any credit product(s) an individual has will affect their credit score; whether this is a positive or negative effect depends on how they manage their borrowing.
If a customer make a full application for a loan, the lender will carry out affordability checks as part of their decision-making process, which will include a hard credit search or Open Banking.* A hard credit search will affect an individual’s credit score.
If the borrower makes a late repayment or miss one altogether, their credit score will suffer as a result.
However, if they make repayments on time each month, they could see an improvement in their credit score. However, this also depends on how they manage any other credit commitments they have.

Is a debt consolidation loan a good idea?

Anyone considering a debt consolidation loan should think very carefully before borrowing to pay off existing debt. If not managed carefully, their borrowing could spiral, which could result in fees and charges, increased financial stress, and a decline in their credit score.

If you’re unsure whether debt consolidation is right for your circumstances, you might want to reach out to StepChange, the debt charity, for free, impartial advice.

Do bad credit debt consolidation loans exist?

It could be possible for someone to get a bad credit debt consolidation loan, although applicants should be aware that a bad credit loan could come with a higher interest rate and a more manageable loan amount.

If you’re reading this article and hoping to increase your credit score, you might also choose to focus on other areas of credit-building, such as registering to vote; checking your credit report for errors; limiting the number of hard searches on your credit file; paying your bills on time; and, if you have a credit card, avoid using it to withdraw money from a cash machine.

Things to think about before applying for a debt consolidation loan

• A debt consolidation loan might not necessarily be the most suitable route to take; spend time doing thorough research into any options that could be available to you.
• You should check to see whether you’ll be charged an early repayment fee on any of your existing debts before you use a debt consolidation loan to clear the balance. If a fee is applicable, you should factor this in to any money you might save by consolidating the debt.
• If you do decide that a debt consolidation loan is a suitable option for you, be sure to check that any company you consider applying with is authorised and regulated by the Financial Conduct Authority (FCA). You can check to see whether a company is on the FCA register here.
• If you’re approved for a bad credit debt consolidation loan, you must be certain that the monthly repayments are affordable for you and won’t leave you unable to cover the cost of your necessary outgoings, such as rent, bills, and food.

Can I search for a debt consolidation loan with Cashflex?

Cashflex is a credit broker, working with a large panel of responsible, FCA-authorised and regulated lenders who offer short-term, personal loans.
You can use Cashflex to help you find a suitable debt consolidation loan if you:

• Are over the age of 18;
• Are a UK resident;
• Have a UK bank account and valid debit card; and
• Have a regular source of income paid directly into your bank account.

Several of the lenders on the Cashflex panel specialise in loans for people with poor credit and may be willing to consider your application.

How much money can I apply to borrow and for how long?

With Cashflex, you can search for a loan between £100 and £10,000, with repayment terms from 3 to 60 months, depending on how much money you apply to borrow.
It’s important to never borrow more money than you need or can afford to repay.

I can’t afford to repay my loan; what can I do?

If you’re no longer able to repay the loan you’ve taken out, you should contact your lender. There may be things they can do to help relieve the pressure, and they will want to work with you to put a plan in place moving forwards.

I’m struggling with my finances; where can I get help?

We’re sorry to hear that you’re in this position and appreciate how daunting money worries can feel. Please know that free, confidential money and debt management advice can be found on sites such as StepChange, MoneyHelper, Citizens Advice, and National Debtline.

*Open Banking is a safe and secure type of affordability check used by some lenders. Open Banking provides a recent, read-only insight into your financial activity via your online bank account. Only you can choose who can view your information and you can withdraw your consent at any time.