What are unsecured debt consolidation loans?
Unsecured debt consolidation loans are not tied to any properties. They are also known as ‘personal loans’.
When you apply for an unsecured debt consolidation loan you are applying for new credit. It is a way to bring many debts into one place and find budgeting easier with one monthly payment. You don’t tie the debt to your house, like you do with a secured loan.
But there are still risks to think about, like:
- More borrowing could lead to even more debt
- New borrowing could affect your chances to get other credit
- Paying interest for the loan increases the amount you end up borrowing
- Not paying in full each month could mean a default notice on your credit file
Interest rates can be different based on your credit history. This means they will most likely be higher if you have a poor credit history.
If you struggle to keep up with repayments, you may be able to reach an agreement with the lender for lower payments or paying over a longer period.
Find out more about what might happen if you cannot pay your personal loan back.
Can I get a debt consolidation loan with poor credit?
If you already have poor credit, getting another loan could make your situation worse.
You will likely pay higher interest rates and fees or not be offered the best deals for debt consolidation loans.
It could also mean being offered secured consolidation loans, which means your home could be at risk if you cannot repay the loan.
For more information, read our guide to consolidation loans with poor credit.
Alternatives to debt consolidation loans
It is a good idea to check if you can really afford to repay any credit you apply for. A debt consolidation loan may sound like a simple way to feel in control of your debt, but debt management can sometimes be a safer option.
If you are not sure what to do, we recommend getting debt advice. Read our guide to debt consolidation or debt management to find out more about other ways to deal with debt.
Is it better to pay off secured or unsecured consolidation loans?
Unsecured loans are less risky than secured loans because you don’t risk losing your home if you cannot make the repayments. But that does not mean unsecured loans don’t have risks!