What is a debt consolidation loan?

A debt consolidation loan is when you bring together multiple types of debt into one simple repayment. If accepted, you can borrow enough money to pay off your credit commitments and you’ll only have to pay back a single lender.

There are different types of debt consolidation loans to choose from.

• Secured – A secured loan is when the money you borrow is secured against an asset, often your home. This means that if you don’t make your repayment, the asset could be seized as payment.

• Unsecured – An unsecured loan is when the loan is not secured to an asset, such as your property, car or other valuable assets.

How do debt consolidation loans work?

Debt consolidation works by moving all your borrowed money into one loan. You may do this to pay off any debts such as:

• Credit cards
• Overdrafts
• Loan arrangements

You will then make one monthly payment to your loan provider instead of multiple to different lenders. You must also pay off your debt consolidation loan within the set term of the loan.

The pros and cons of debt consolidation loans

Before applying, it’s worth considering the positives and negatives of consolidation loans, to help you make your decision:

Pros

• You will only have to make one monthly loan payment
• Manage your debt more easily and potentially reduce your monthly repayments
• It can improve your credit rating by closing multiple loans and credit card accounts
• Consolidating your debt with an unsecured loan could ease your financial burden

Cons

• Your repayment period may be extended with one larger loan repayment
• You may pay more interest over time than you would have if you paid off each debt individually
• If the loan is secured, your home may be at risk of repossession if you cannot make your repayments
• If you’re concerned about your debts, some debt advisors can offer free advice and information that may be more beneficial in helping you get on top of your loans. You can find more information here

You could pay less interest by moving an existing credit card balance to a balance transfer credit card offering a longer introductory period on balance transfers. Always consider all the finance options available to you.

Should I get a loan to consolidate my debt?

Before you start a personal loan application, there are a few things you should consider:

Options available

Before deciding on whether to take out a debt consolidation loan, it’s useful to consider other financial options that may be available – like savings or other borrowing. Have a careful look at your budget too and review where you could cut down your monthly outgoings.

Interest rates

Interest rates can be tiered depending on how much you borrow so once you work out the loan you will need, make sure to check the rate. Generally, interest rates vary depending on how much you borrow. You might pay a lower rate if you choose to borrow a different amount.  

Monthly repayments

Check what the monthly repayments are likely to be and that you can afford them.  Most debt consolidation loans are unsecured, which means the provider of the loans cannot claim your home if you are unable to keep up with repayments. However, there are other actions the lender could take, and missing repayments will adversely affect your credit rating.

Keeping on top of payments

You need to ensure you make all your payments on time as not doing so will affect your credit score and your eligibility to borrow more in the future.  If you can’t make a payment let your lender know as soon as possible.  If you apply for a secured loan, you are at risk of any unpaid debt being held against your property or other financial assets if repayments not made.

Find out more about secured vs unsecured loans

Paying off early

For any existing debts you have, you should check if any repayment charges apply if you are in the position to pay off your loan early.

If you’re unsure on the best loan option to consolidate debt, check out our guide to personal loans.

Debt consolidation loan calculator

If you choose to consolidate your debt, our calculator can help give a view of what your interest rate could be. 

This can help you understand whether a debt consolidation loan could be the right option for you.   

• From 6.0% APR representative for Nectar members when you borrow £7,500 - £15,000 for 1–5 years

• We’ll work out your possible interest rate, monthly payment amount and total cost in just a few clicks

• Find out how likely you are to be accepted, and rate we might offer you, without affecting your credit score 

• You could get your money in as little as 2 hours, or the next business day, if you’re accepted 

• Our online application is quick and easy to complete, you can sign your agreement online, and upload any documents we might need

All quotations given are for illustrative purposes only.  

Note that credit is subject to status. And the rate you may be offered will depend on your personal circumstances, credit assessment procedures and other related factors.

Find the right option for you

If you’re looking for the best debt consolidation loan to apply for, we offer six different levels of borrowing. See our banded loan options for the total amount repayable, representative APR and monthly repayments.

How to apply for a debt consolidation loan 

It’s easy to apply for a debt consolidation loan. Follow these steps to start:

1. Calculate your loan – Use our loan calculator to check how much your loan may cost you. You can input the amount you’d like to borrow, as well as how long for to see what rates you could be offered. 
2. Find out if you’re eligible for a loan - Before you apply for a loan it’s important to know if you’d be eligible for one. A soft credit check will assess how likely you would be to be approved based on your credit score. 
3. Enter your personal details – You’ll be asked to provide some information – like your title, name, date of birth and contact details. 
4. Confirm the loan purpose – When you apply to take out a loan, we need to know a little more about what you’ll be using the money for. You can choose an option from a dropdown box. Choose the option for debt consolidation.     
5. Add your address – You’ll need to tell us your address. You can enter it in manually or start typing and then choose it from a drop-down list. If you have lived at that address for less than three years, you may need to add a previous address too.
6. Enter your personal circumstances – We will ask for some information around your marital, employment and residential status. 
7. Add your financial information – When prompted, enter your income details. You will also need to add the bank account you want the funds to be paid into and the repayments to come out of.
8. Confirm and send your application – Once your application has been received, lender checks will take place. This includes a soft check of your credit report and top-level information in it. You’ll then undergo a more in-depth hard credit check of your financial history.
9. Receive a decision – You’ll be informed if you’re successful or unsuccessful in your application. If accepted, you’ll receive a loan agreement to read over and sign. Once this has been returned, your money will be deposited into the bank account you included in your application.