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If you have multiple debts and bad credit, use one of these loans to consolidate them into one debt, with one payment term.

What are debt consolidation loans

Managing and keeping track of several debts at a time can be tricky but a debt consolidation loan can help remove the hassle of different bills. Here we’ll go through what debt consolidation loans are and the best debt consolidation loans on the market at the moment.

It is a form of personal loan that you put towards paying off all your debts such as credit cards or overdrafts.

The benefits of debt consolidation loans

Getting a debt consolidation loan removes the hassle and worry about following and meeting different payment dates or minimum amounts and can make it easier to keep track of your debts.

It also helps with cashflow as the same amount of money will be coming out at the same time each month.

You should also be able to lower your monthly repayments in contrast to what you are currently paying on all your credit card or overdrafts.

The risks of debt consolidation loans

Your monthly repayments may be lower but you could end up paying back more than what the debt is worth depending how long the loan is and if there are any fees.

A debt consolidation loan isn’t necessary a solution if you are regularly getting into debt as it is just swapping one type for another and if you can’t keep up with these repayments it could harm your credit rating.

Do consolidation loans hurt your credit score?

All forms of debt are registered on your credit report and score which lenders use to consider applications for finance such as a mortgage or further loans.

Your score could be impacted if you miss repayments on a debt consolidation loan and if you make too many applications as lenders may be wary of how much you rely on credit.

How to compare debt consolidation loans

Compare the new loan with your existing circumstances and whether you will be better off.

You should compare loans on the interest rate, term but also if there are any fees or interest charge for repaying early. Some may also offer repayment holidays or have rates only available for existing customers.

Some providers may only offer debt consolidation loans to certain age groups.

Check if you can do a soft search to see if you would be eligible for a loan as it may harm your credit rating if you make too many applications or are rejected.

Alternatives to debt consolidation loans

• Balance Transfer Credit Card: A personal loan isn’t the only product that can consolidate debts. You could also use a balance transfer card. This pays off credit card debt and moves it to a new provider where in some cases you can make interest-free repayments over a long period.
• Remortgaging: Homeowners could be better off remortgaging especially if you have a large debt. Mortgage rates are at record lows and if you have enough equity in your home you could release some of the cash through a remortgage to settle other debts. This will increase your mortgage payments and puts your home at risk if you fall into arrears.
• Debt Management: Rather than taking on more debt, it may be possible to arrange a debt management plan. This is an agreement between struggling borrowers and lenders to help setup more manageable repayments. A debt adviser can help arrange this or you could speak with charities such as StepChange, Payplan and National Debtline.

A home improvement loan is perfect if you’re looking to carry out improvements that will add value to your house, such as a new kitchen, bathroom or extension

What are Home Improvement Loans?

Home renovations can be expensive but will boost your living space and ultimately the value of your property.

Whether it is a new kitchen or an extension, you will still need a lot of cash to pay for everything from builders to furniture and even architects for larger projects.  This is where a home improvement loan can help.

A home improvement loan is a form of personal loan that gives you the money needed upfront to fund changes around the house.

How to choose a home improvement loan?

There are two options when select home improvement personal loans.

You could apply for an unsecured loan. This is assessed based on your credit report and is usually best for amounts up to around £30,000.

If you need to borrow a larger amount then it may be worth going for a secured loan. This is a loan secured on an asset such as your property and you can usually get up to £100,000.

Terms range from five years to as long as 25. The risk with a secured loan is your property is at risk if you fail to keep up with repayments.

The rate and term are important as you need to ensure you can afford the repayments and you also need to check the amount you are offered reflects the cost of the works.

Remember, the costs of renovations can often be more than expected so it is best to budget for more if you can afford it.

Does a home improvement loan affect my credit score?

All debts such as loans appear on your credit report. Your credit score could be reduced if you fail to keep up with repayments. Lenders may also be wary of providing finance to you if they see you have applied or already have a lot of credit.

It is best to try to do a ‘soft search’ when applying for a loan so you can see what you are most likely to be accepted for and it doesn’t leave a footprint on your credit report until you apply.

Benefits of home improvement loans

• Don’t have to raid your savings: A new kitchen can cost on average £8,000 according to Householdquotes.co.uk while an extension could go £2,000 per m2. Not many people will have this much spare cash lying around. A home improvement loan gives you access to the money you need to fund your project.
• Boost the value of your property: You need to ensure you can meet the repayments of a home improvement loan but the changes can also boost the value of your property, which could be beneficial when you come to sell.

Risks of home improvement loans

• Your home or credit report may be at risk: A secured loan will let you access a larger amount of money but you are also putting your home at risk of repossession if you can’t afford to repay. Similarly, even with an unsecured loan, if you fall into arrears you could harm your credit score which will make it harder to access finance in the future.
• Budget: Set a budget before you borrow as you don’t want to pay too much interest for money that isn’t being put to good use. However, remember that projects can also go over budget so you don’t want to run out of money. There may also be unexpected expenses that occur along the way, meaning the loan may not stretch far enough.

Bad credit and home improvement loans

The best rates on personal loans are offered to those with clean credit scores. Lenders only have to provide the advertised rates to 51 per cent of applicants. If you are in the other cohort you may end up paying a higher rate.

Secured options for home improvement loans

You may be better off using a secured loan for big budget jobs that run closer to £100,000. The value of your property is taken into account and used as a security. You can get a secured loan of £80,000 for five to 25 years for 3.6% APR with Paragon Bank or 3.57% for £100,000.

Alternatives to home improvement loans

• Credit card: An authorised overdraft on a credit card can be a useful way to pay for items upfront especially if it is a relatively low amount. You could also find credit cards that offer cashback or interest-free spending periods. But remember to repay the bill each month or interest will be added.
• Savings: If you are not in a rush to get your works done it may be worth setting a budget and seeing how much you can afford to save each month. This means you don’t have you take on extra debt, but ensure you still have money put aside for day-to-day emergencies.
• Remortgage: Mortgage rates have hit record lows in recent years. If you have enough equity in your property you could remortgage to release some cash. This will increase your monthly mortgage repayments but will typically give you access to a larger amount than a personal loan.

If you can’t get a loan for whatever reason, perhaps through having bad credit, then apply for a loan where someone else acts as the guarantor, perhaps a relative. If the loan defaults, they’re liable for the debt.

The positive of a joint account loan is you might, as a couple, be able to borrow more together. The negative is each of you may be asked to repay the debt in full if the other person can’t.

What is a joint account loan?

A joint loan combines two incomes and credit reports, meaning borrowers can often boost their chances of getting accepted, borrow more and share the repayments. You can apply for a joint loan with your partner, friends or family.

Benefits of a taking out a joint account loan

• Combined credit scores: When two people apply for a loan a lender will consider both credit files, which boosts your chances of getting approved. Partnering with someone who has a better credit score may also help improve yours in the long term if you repay on time.
• Boost your income:  Combining two incomes gives you a better chance of meeting affordability requirements, helping to get a better rate and borrow larger amounts if needed.
• Share the repayments:  The responsibility of repaying a joint loan is shared so you can combine your incomes to ensure it is repaid rather than having to do it alone.

Risks of applying for a joint loan

• Joint liability: Regardless of who the money is for or how it is spent, the debt always has to be repaid in full. This can cause an issue if you get divorced or fall out with someone you borrowed with.
• Credit report risk: A joint loan links your credit file with the other person. If the loan falls into arrears both reports and scores will be affected, which could harm any future applications.

What to consider when applying for a joint loan

The rate and term are important, as is any flexibility to take a payment holiday or repay early.
Joint loans add extra complexity as both parties need to be in for the long haul. Whether you are borrowing as husband and wife, partners or just friends, it may be worth drawing up a legal agreement to decide how the loan is repaid if you separate.

Alternatives to taking out a joint loan

• Credit card: A credit card may be an effective way of accessing smaller amounts, especially if you can find one offering interest-free spending. Don’t forget to make the monthly repayments or you will be charged interest.
• Remortgage: Mortgage rates are at record lows and you could use the equity in your property to release extra cash. This will increase your mortgage repayments and put your home at risk if you fall into arrears.
  Savings: If you are not in a rush and have an idea of how much you need, why not put a certain amount aside each month if you can afford to do so? That will save on interest and you could even put it in a savings account in the meantime.

Sometimes called a flexi loan, a flexible loan allows you to increase or decrease your loan amount as you go along or vary the repayments. Some permit you to miss the occasional payment.

These are the best bets if you want to repay in full within a year. Short-term 1 year loans are ideal for funding a purchase or perhaps consolidating a debt.

Even if you’ve been refused credit in the past owing to a poor credit history, you can get a loan. But because you have a higher risk attached to your application, you’ll be paying more in interest.

Late payments, county court judgements, defaults, bankruptcies or even just a short track record of managing debt all reduce your credit score. This makes it harder to get a loan but not impossible.

Taking out a bad credit loan can help you access finance and build up your credit score at the same time.

Bad credit loan benefits

Access to finance: A low credit score doesn’t necessarily mean you can’t afford to repay a loan but lenders will be more wary so while you won’t get the best rates, a bad credit loan will still provide some sort of funding if you need to borrow money.

Restore your credit score: You need a history of meeting repayments to build up your profile but can’t get that without having access to credit. Repaying a bad credit loan on time will eventually rebuild your credit report and boost your score, giving you better rates in the future.

Bad credit loan risks

Higher rates: You will pay more than the best buys for a bad credit loan to reflect the extra risk a lender is taking.

Your assets: Some providers will take a security on assets such as a car or your home. This helps borrow more but also puts these items at risk of repossession if you fail to keep up repayments.

Can you afford it? You need to be able to afford the monthly repayments or face paying penalties and potentially harming your credit report even more.

How to choose bad credit loans

There are different types of bad credit loans.

Guarantor loans require someone to effectively underwrite the borrowing by being held liable for any missed payments or defaults.

You could also take a secured loan against your own assets such as a home or car.

Peer-to-peer lenders may be a good option as they won’t operate an instant computer says no policy that the legacy systems at a bank will have.

Do a soft-search initially to check loans you are most likely to be approved for as even just making several applications can reduce your credit score further.

Alternatives to bad credit loans

A debt consolidation loan may be better if you are struggling with managing your debts and then apply later when your credit score is better.

There are credit cards for those with bad credit that let you borrow smaller amounts but will have higher APRs if you miss payments. Your current account may have an approved overdraft but remember you will face penalties if you go beyond the limit. It is also worth checking if there is a local credit union you are eligible to join as these non-profit groups can provide finance to members.

A long-term loan might be the best option if you want to reduce your monthly costs. The downside, of course, is that it will take you much longer to settle the debt, and over that time you may pay more in interest.

A low interest loan offers the best interest rates around but you must have a decent credit rating. No lender will risk low rates on just anybody!

Tenant loans are liable to have a higher interest rate payable since the applicant won’t have a home to secure against the debt. The best option is to plump for a tenant guarantor loan, whereby someone close to you secures the loan.

The ideal amount for a new car, holiday or perhaps a purchase for the home, compare lenders for borrowing upto £5,000.

Businesses need finance to grow and become a success. Both start-ups new to business and established companies could benefit from an injection of cash to fund expansion, cover short term cash flow issues or to refinance borrowing at a better rate with a business loan.