Many people have multiple loans and credit cards that they’re paying off at the same time. This can be difficult to manage and keep track of. If you don’t stay on top of everything, you’re at risk of not making your payments on time. Not keeping up with your payments will lower your credit score and could drive you further into debt.
The solution for many borrowers is a debt consolidation loan. In this article, the Best Unsecured Loans team explain what a debt consolidation loan is, what they are used for, and whether you can get one with bad credit.
What is a debt consolidation loan?
A debt consolidation loan is a form of short term loan that you can take out in order to cover the costs of all of your other outstanding loans and credit cards. It is designed for people who have multiple outstanding loans and credit cards that they are paying off. By taking out a debt consolidation loan, you can borrow enough to pay off all of your other loans and credit cards – you can then focus on paying off that single loan.
This means that it is a lot easier to keep a track of your finances. Naturally, this means that you are less likely to miss your repayments and this can lead you to finding yourself in greater debt down the line.
Why would you want to take out a debt consolidation loan?
Debt consolidation loans are there to help make sure that people are able to manage all of their credit easily. If you have 5 outstanding personal loans and credit card accounts that you are trying to pay off, then keeping track of how much you have to pay for each loan every month can be tricky.
By paying off all of these loans with the money you borrow from a debt consolidation loan, you can make these repayments easier.
As well as making it easier, debt consolidation loans often carry lower interest rates than existing credit facilities. That means that, if you find the right debt consolidation loan, you may end up paying off less.
Is a debt consolidation loan a kind of personal loan?
Yes, a debt consolidation loan is a form of unsecured loan (more commonly known as a personal loan). Unsecured loans mean that you do not have to put up a form of collateral in order to borrow money. Collateral is something of importance and value to you (usually your home) that lenders can take off you and sell in the event that you do not repay your loan in full.
With unsecured loans, the lenders look at your existing financial circumstances and then at your credit score instead of taking a form of security from you. This means you are not at risk of losing your home by taking out a debt consolidation loan. Instead of collateral, lenders look at your credit score to help them decide whether or not they are going to let you borrow money.
What is a credit score?
Your credit score is a number calculated by looking at how you have managed your credit in the past. It takes into account how many bills you have paid, how many loans you have taken out in the past, how many of these loan repayments you have made on time, and if you have defaulted on any loans.
This helps give the lender a good idea about how likely you are to be able to repay the loan if they decide to lend you money.
Unsecured loan providers will also look at your personal financial circumstances to see if you can repay the loan. This is called an affordability check. This check includes how much you are making on a regular basis, if you have a full time job, if you receive any government benefits, and if you have any dependants.
From your credit score and the affordability check, the lender has a good idea of if they would like to give you the money, without needing to take something from you – as is the case with secured loans.
How do you get a bad credit score?
If you have taken out multiple loans in the past and you missed a few repayments on them, you will likely have a lower-than-average credit score. This shows the lender that there is a higher risk of you missing payment and even defaulting on the loan. As a result of this, there will be fewer lenders who are willing to work with you.
This doesn’t mean that you won’t be able to still get a debt consolidation loan. There are many loan providers who specialise in dealing with people with low credit so you can still access the finance that you need.
You may want to consider raising your credit score in order to find a better deal though. The lower your credit score, the higher your interest rates will be. Although you will have a choice of providers to work with, they won’t give you their best deals unless they’re certain that you will be able to pay back the loan. The only way to achieve this is to raise your credit score.
To get a higher credit score, you have to consistently pay your bills on time and make sure that any of your previous loans are accounted for. If you manage to pay off all of your loans and maintain good credit for long enough, there is no reason that your credit score won’t be as high as someone who has never had poor credit.
Get a debt consolidation loan with the help of Best Unsecured Loans
If you’re looking for a debt consolidation loan, try Best Unsecured Loans. We are a loan broker, not a provider. This means that we don’t supply you with the loan directly. Instead, we put you in contact with several loan providers and we help you compare their offers.
It all starts with our application form. This is where you tell us how much you would like to borrow, how long you would like the money for, and how you intend to pay back the loan. Once you have filled in this information, we look at your credit score and run an affordability check on you to make sure you can pay back the loan.
Once we’ve done this, we then submit your loan application to our panel of lenders. They will assess your application against their own criteria and come back to us with their best offers. We then take these offers and show them to you.
All of this is done within minutes and you are under no obligation to accept any of the quotes that we give you.To get started, click here.