Consolidation loan

How it works

Apply to a lender for a loan to clear debts. These are often advertised as ‘consolidation loans’. The lender may want to secure the new loan on your house if you own property.
It is very important that you shop around for the best deal from high street and internet lenders. If you have a poor credit rating, it is possible that a good deal may not be available to you.



  • ​This won’t affect your credit rating unless you fall behind on payments.
  • You will be making one monthly payment on one loan, rather than many payments to different creditors.
  • Your new monthly payment should be lower, but you must check that you can afford the new payments.
  • ​If you have a poor credit rating you may not be able to take out a consolidation loan, or you may be offered one on worse terms and conditions, for example at  a higher interest rate.
  • If the loan is secured on your house, then it could be repossessed if you do not keep up with the payments.
  • Interest rates often change over the loan period, making it impossible to work out what the total cost of the loan will be.  Check if the interest is ‘fixed’ or ‘variable’.
  • Loans are often offered over a longer time than your original loans.  This means that, even if the interest appears reasonable, the length of time you have to repay can increase the overall cost of the loan significantly. This means that in the end you pay more.
  • If you don’t clear all your existing borrowing, then you may struggle to make the payments.
  • If you keep your credit cards it may be tempting to use them again.
  • If you did not use Your budget to make a full budget, listing your income and outgoings, you may not have worked out if you can realistically afford the new payments.