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Debt consolidation loan FAQs

This section answers the most commonly asked questions about debt consolidation. Remember that if you need to understand more about your own debt problems, the online application process can help.

1. Why are consolidation loans cheaper?
2. Is there a limit to what I can borrow?
3. How can I tell whether or not I can afford it?
4. Is there a credit 'blacklist'?
5. Does consolidation damage my credit rating?
6. Will creditors still chase me?
7. Do other people know about the loan?
8. Where can I get a consolidation loan?

1. Why are consolidation loans cheaper?

It depends what you mean by cheaper. A consolidation loan lasts many years and is larger than the individual debts it pays off. That means lenders are willing to offer a lower interest rate and your monthly payments will be lower. The amount you pay in total can still be very high, however. A consolidation loan isn't always 'cheaper' if you work out what you pay over its entire period.
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2. Is there a limit to what I can borrow?

Unsecured consolidation loans are limited by law to £25,000. If you need to borrow more than this you would need to consider re-mortgaging, with a loan secured against your house.
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3. How can I tell whether or not I can afford it?

You will need to work out a monthly budget, including all of your essential expenses such as food, rent, clothes and travel. If there is a realistic amount left over to pay back a consolidation loan then it may be a good choice.
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4. Is there a credit 'blacklist'?

Even though creditors will sometimes threaten you with a 'blacklist' the reality is that there is no single, central list of high risk borrowers. Each lender will maintain its own lists, however. Bear in mind too that some things such as missed payments or legal proceedings will affect your credit score, and this can be accessed more widely via credit agencies such as Experian.
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5. Does a consolidation loan damage my credit rating?

If you successfully pay off a consolidation loan, it will have no further negative impact on your credit rating. Remember that existing debt problems may affect how easily you can obtain credit, however.

6. Will creditors still chase me?

The idea of a consolidation loan is to pay off your existing creditors, so that you no longer owe them anything. You will owe money only to the new lender and should have no problems as long as you keep up with your new repayments.
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7. Do other people know about the loan?

Consolidation loans are a private matter between you and the lender. They are no different to an overdraft or credit card loan in the sense that nobody else needs to know about your position.
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8. Where can I get a consolidation loan?

If you are certain that a consolidation loan is suitable, your own bank may offer you a good deal. Otherwise, it's worth shopping around and the internet can be a good source of competitive loans.
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Further reading:
Debt | Debt Solutions | Debt Consolidation | Refused Consolidation | Debt Consolidation FAQs

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