An adverse credit history means that getting lender approval is more difficult than it used to be. Debt consolidation loans for people with bad credit are still available, but you’ll need collateral. If you own your own property, you may still be eligible for a secured homeowner loan.
Consolidating debt with bad credit used to be easy, but borrowing money has become more difficult since the subprime crisis. Specialist poor credit lenders have stopped lending. As well as home equity, you’ll also need to demonstrate that the repayments are affordable to you.
Debt Consolidation Loans for People with Bad Credit
When you’re struggling to make the repayments on credit cards, hire purchase, small loans and overdrafts, a secured homeowner loan could reduce your repayments. You can combine your debts, increase the term and reduce the amount of income that goes towards servicing them. You may wish to use a comparison site, such as moneysupermarket.com, to compare the cost of borrowing.
The money you owe on a charge card is referred to as revolving debt because it doesn’t have a defined term and could continue indefinitely. If you owe $3,000 on your credit card at 16%, paying 2% of the balance will not clear the balance for over 36 years. Consolidating debt with bad credit means that you can be completely free from debt 3, 5 or 10 years from now.
Should I Get a Personal Loan for Consolidation?
When you owe money to multiple creditors, it’s all too easy to forget to make a payment. Creditors will only remind you once they’ve added a charge to your account. If that isn’t bad enough, credit reference agencies will also be advised. When you’re rebuilding your credit, this can be a setback.
A loan for debt consolidation enables you to put all of your debts under one roof. You’ll then make a single, affordable repayment to the lender. You can either extend the term to improve affordability or shorten the term to reduce the amount of interest that you pay over the life of the loan.
Can I Get Debt Consolidation Loans without Owning a Home?
If you borrow money with bad credit, the cost of borrowing will be higher. You’ll also need a cosigner. The cosigner will typically be a close friend or family member with very good credit. If you fail to comply with the terms of the credit agreement, the cosigner becomes legally responsible for the debt.
If you get a loan without a cosigner, you’ll pay a usury rate of interest. If other sources of finance are less expensive, consolidation is rarely advisable. It may simplify your finances, but the primary purpose of consolidation is to reduce the cumulative interest that you pay on your debts.
Is Consolidating Debt a Good Idea?
A secured personal loan for consolidation involves providing the lender with collateral. This increases the likelihood of approval and means that you’ll pay a more favorable rate of interest, but it also gives the lender the right to repossess your home if you default on the terms of the agreement.
Missed and late payments are recorded by credit reference agencies. If most of your debts are unsecured, there are alternative ways to consolidate debt. If you don’t want to take out yet another loan, it’s worthwhile considering a debt management plan or debt settlement program.