Dealing with multiple debts can be stressful, especially when you're trying to manage different due dates and interest rates. If this sounds familiar, you may consider getting a debt consolidation loan. But if you have a low credit score, you may wonder if it's possible.
In this guide, we’ll explain what to expect if you have a low credit score, whether you can still get a loan, and how it can impact the terms you’re offered.
What is a debt consolidation loan?
A debt consolidation loan is a way to simplify your finances if you have multiple debts. Instead of keeping track of several different payments, you take out a single loan to pay off all your debts. This may make it easier to manage your payments and may even lower your overall expenses.
To do this, you can choose between an unsecured loan (which doesn’t require security) or get a secured loan (which is backed by your property). The type of loan you choose depends on your situation. Each type has its pros and cons, so it’s important to research and understand what works best for you.
Can I get a consolidation loan with a low credit score?
Yes, you can still get a debt consolidation loan with a low credit score. Some lenders specialise in helping people with poor credit histories, so it is possible.
One factor that can impact your approval is the type of loan you choose. An unsecured loan may be harder to get because the lender has no security to fall back on if you fail to repay, making it riskier for them. As a result, they may have stricter approval requirements.
On the other hand, a secured loan could be easier to get since the lender can take your property if you can’t make payments, reducing their risk. However, this makes it a riskier option for you, as your home could be at risk if you fail to make the repayments.
How will a low credit score impact the terms I get?
While it’s possible to get a low credit score debt consolidation loan, the terms may not be as favourable as those offered to someone with a higher score.
One of the main effects may be higher interest rates. Lenders charge higher rates to people with poor credit to offset the increased risk, which means you could end up paying more over the life of the loan.
Additionally, fewer lenders may be willing to work with you. Not all lenders approve loans for people with low credit scores, and some may have stricter requirements.
In short, while it’s still possible to get a loan with a low credit score, you may face higher interest rates and fewer choices.
Do consolidation loans hurt your credit score?
Taking out a consolidation loan can cause a temporary dip in your credit score if the lender performs a hard credit check. However, if you make your payments on time and stick to the repayment plan, this type of loan can help improve your credit score over time.
On the other hand, if you miss payments or make them late it could hurt your credit score. So, if you decide to take out a consolidation loan, it’s crucial to keep up with your payments and stick to the schedule. You can learn more about how it may impact your credit score in our blog 'will debt consolidation hurt my credit score'.
Can I get a debt consolidation loan without a credit check?
No, all lenders will require a credit check before approving your loan. This is a necessary part of the process, and there’s no way around it. Lenders need to understand your financial situation to ensure they aren’t lending irresponsibly or making your situation worse.
Summary
While you can still get a debt consolidation loan with a low credit score, you may face higher interest rates, fewer options, and stricter approval requirements. The terms you’re offered will also depend on your credit score and the type of loan you choose. Overall, even with a low credit score, it’s still possible to get a consolidation loan.
If you're struggling with debt, contact your lender as soon as possible to discuss support. You can reach out directly or through a debt charity. This could help lower your monthly payments without needing a loan. If you need more information and free advice, contact: MoneyHelper or Citizens Advice Bureau (CAB).
Loans are secured against property. Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it. Be aware that consolidating debt could extend your repayment term and increase the total amount you pay over time.
