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Debt consolidation loans

Super save with a consolidation loan

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What is a debt consolidation loan?

A debt consolidation loan is a type of loan that's used to combine all your existing debts into one pot. All you’ll need to do is apply for a loan for the amount you owe in existing debt and if approved, you can use the funds to pay off your other borrowing. You’ll then pay off the loan over time, usually in monthly repayments.

Not only could a debt consolidation loan make your debt easier to manage, it can also reduce the amount of interest you pay by having all your debt in one place at a lower interest rate.

MoneySuperMarket can help you compare debt consolidation loans from across the market, from a range of providers. Our online comparison tool can find a deal to suit your needs, all without harming your credit score.

How many people apply for debt consolidation loans? Debt consolidation loans made up 23% of loan applications for 2020/2021

What can I use a debt consolidation loan for?

A debt consolidation loan can be used to pay off different types of debt, including: 

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    Credit card debt

    Many credit cards charge high APRs making them an expensive way to borrow long-term

     

  • loans icon

    Personal loan debt

    Unsecured loans are often taken out to fund a car purchase, home improvements or a holiday 

  • Bank icon

    Overdraft

    Most banks charge high interest rates on overdrafts which, over time, can lead to a big debt 

  • Coin icon

    Store card

    While some store cards offer up-front discounts on spending they often have high APRs and fees

With a pre-approved loan, the deal you see is the deal you get

When you apply for a loan, it’s not always clear what deal you’ll be offered or whether you’ll be accepted. But when you’re pre-approved for a loan, you know the deal you see is the deal you’ll get – you’ll know where you stand, with information that will help you make the right choice.

  • question set image

    Apply with confidence

    When you’re pre-approved, the loan amount, duration and interest rate are all confirmed

  • chance of approval image

    Tailored to you

    When you know what you’ll be able to borrow and how much it will cost, you can choose a loan that’s right for you

  • Credit Monitor image

    You’re in safe hands

    This helps protect your credit score as you’re less likely to be rejected when you apply

How do debt consolidation loans work?

A debt consolidation loan lets you move your existing debts to one loan so you only need to make one monthly repayment. Here’s how it works:

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    Work out what you owe

    Look at your existing credit card, loan and overdraft debts. Calculate the total value of the loan you’ll need to cover these existing debts and borrow that amount

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    Pay off debt with the loan

    Use the loan to pay off existing borrowing. Having just one loan reduces the amount of repayments you have to make each month by having your debt in one place

  • 3 icon

    Pay back the loan

    Once you’ve paid off your existing debts you’ll then pay back the consolidation loan within the set term. Having just one monthly repayment could make things easier to manage

Is a debt consolidation loan a good idea?

Whether a debt consolidation loan is the right option for you will depend on your financial situation. Here’s some pros and cons of debt consolidation loans, to help you make the right choice:

  • Reduce your monthly repayments

    This works particularly well if you have quite a few outstanding debts accuring interest 

  • Missed payments have consquences

    You will damage your credit score if you don't make your repayments in full each month

  • Lower overall interest

    Debt consolidation loans tend to have lower APRs than payday loans or some credit cards

  • Set-up fees can be pricey

    Your exisiting creditors may charge you a fee for transferring the balance on your loans 

  • Easier to keep track of your debt

    Managing one payment a month is more straightforward than several at once

  • You may lose your home or car

    If you can’t keep up with the repayments on a secured loan your home or vehicle could be repossessed.

  • Boost your credit score

    It's easier to make one repayment every month, and doing so can improve your score

  • Other options are available

    For example, a 0% balance transfer credit card may suit someone with more modest debts

How much will a debt consolidation loan cost?

Debt consolidation loans are designed to help you manage your existing debt, so the loan will need to cover your existing debts’ value. How much a debt consolidation loan will cost will depend on several factors:

  • Loan amount: This will depend on the value of the debts you plan to consolidate 
  • Term: How long you intend to borrow (the average term is 4 years*)
  • APR: This is the loan interest rate plus any other charges like annual fees or arrangement fees
  • Any extra fees: Providers may charge a settlement fee if you pay the loan off early

Always check the cost of the consolidation loan is worthwhile, compared to what you're paying on existing debts. Our loan calculator can give you a good idea of how much a loan is likely to cost. That way you can have confidence that your borrowing is affordable.

*According to MoneySuperMarket data, average term for debt consolidation loans, September 2020-September 2021

Can I get a debt consolidation loan with bad credit?

If you’ve struggled with debt in the past and have a low credit score you may not be offered the best loan deals. But there are specialist providers offering debt consolidation loans for bad credit. Your lender will decide which type of loan – and what interest rate – it can offer after checking your credit score.

If you have bad credit, providers may offer you a debt consolidation loan secured against your house, rather than an unsecured debt consolidation loan. But remember while this can seem like a good option, your home is at risk if you can’t keep up with your repayments.

The good news is if you keep up with repayments on your debt consolidation loan, and have no other negative credit factors, it should lead to an improvement in your credit score over time.

Representative 29.9% APR

How to compare debt consolidation loans with MoneySuperMarket

We’re here to help find the right loan for you, so we’ll tell you which rates you’re guaranteed to get. 

  • Results

    It doesn’t take long

    Tell us a little about yourself, your finances and the loan you want

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    We’ll browse the market

    We’ll search through loans from a wide range of lenders on the market

  • Guaranteed cards

    Compare loans

    You’ll be able to sort loans by the overall cost and the likelihood you’ll be accepted

A debt consolidation loan is a loan you use to pay off your existing debts. Say you owe £2,000 on one credit card, £2,000 on a store card, and £1,000 on your overdraft, you could take out a debt consolidation loan for £5,000 to repay them all over a set term.

Debt consolidation loans can be a good way to take control of your borrowing, especially if you owe money to a number of different lenders. However, they aren’t right for everyone. If you only have a few debts on which you are already paying an attractive APR, it might be worth concentrating on sticking to your existing repayment plans. 

Many standard personal loans can be used for debt consolidation. However, some lenders prefer you to use their loans for specific purposes such as buying a car or renovating your home, so it’s worth checking this before you apply. If you have a lot of debt, you may also find it harder to qualify for a low-cost personal loan. 

 

Whether or not a debt consolidation loan is right for you will depend on the sort of debts you have already. For modest credit card debts, for example, a 0% balance transfer credit card could be a good alternative. But if your debts are substantial, and you’re struggling to manage the repayments, a debt management plan may be a more suitable solution. 

 

 

Most banks offer secured or unsecured loans which can be used for debt consolidation. Make sure you weigh up which loan is the right option for you. While a secured loan may come with a lower interest rate, you are at risk of losing your car or home, for example, if you struggle to keep up with your repayments. 

 

A debt consolidation loan can be used to combine all your existing debts into one loan payment – making it easier to manage rather than having several payments to different lenders. While a debt consolidation loan won’t reduce the amount you owe, it can make your repayments cheaper if you find a loan with a lower interest rate. If you’re having debt issues, check out our debt guides for more information. 

 

You work hard to earn your money, and we don’t think you should waste a penny of it paying over the odds on your household bills. That’s why at MoneySuperMarket, we’re on a mission to save Britain money.

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