Debt Consolidation Loans
Simplify your finances with a low cost debt consolidation loan.
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Managing multiple debts requires juggling due dates, interest rates and lenders, while trying to keep track of your finances at all times. One way to simplify the process is to use debt consolidation.
Debt consolidation aims at reducing stress by closing the current set of loans and paying them off using a single, bigger loan. If managed well, it brings down your total monthly repayment, helping you consolidate your debt into one loan.
However, if executed badly, debt consolidation can end up increasing your overall interest cost or increasing the term without any reduction in monthly payments.
The UK has a large and competitive market for debt consolidation. You can get loans for paying off credit card debts, overdrafts, store cards, BNPL debt, personal loans, and more.
At ABC Finance, we’re an FCA-regulated finance broker that’s been helping people save money on their borrowing since 2000. We work with you to find the right debt consolidation option for your circumstances.
What is a Debt Consolidation Loan?
In simple terms, debt consolidation means taking out one large, overarching loan to repay all your other smaller loans. The idea is to reduce the stress of managing multiple repayment schedules and replace them with a single monthly payment over a fixed period of time.
While debt consolidation doesn’t reduce your debt amount, it might lower your interest rate or monthly costs, if done correctly. The main advantage, though, is that it cuts the administrative headache of constantly monitoring multiple payment cycles and the harm they might cause to your credit if you miss any.
How Debt Consolidation Loans Work
A debt consolidation loan can be paid out either directly to you or, as is the case increasingly, to your creditors by the lender. Once the old debts are closed, a new repayment cycle begins with fixed monthly instalments, as per a rate and term decided between the lender and the borrower.
The key consideration in a debt consolidation is to ensure that the repayment rate of the new loan is lower than the blended APR of the previous loans.
For example, if you can get down a £15,000 loan at a blended APR of 22% to a single loan at a 7% APR over 4 years, that reduces your monthly burden by a huge amount.
Debt consolidation loans can be of two types: secured and unsecured.
Unsecured debt consolidation loans do not require any collateral. The pricing and approval process is entirely based on your credit history and income. Such loans are often used for consolidating smaller amounts between £5,000 and £35,000. Rates are higher than secured loans, but since there is no collateral, there is no risk to your property or assets.
Secured debt consolidation loans require an asset to be pledged as collateral against the loan. The lender is able to offer better terms and rates, since they have the option of repossessing your asset in case of default. This kind of facility is often used for consolidating larger debt burdens. Secured loans are one of the best ways of getting low interest loans for debt consolidation.
Who Can Apply and Eligibility
While there is a large market of lenders who offer debt consolidation products, the terms and eligibility criteria vary a lot depending on your credit profile.
Common Eligibility Criteria
To access debt consolidation in the UK, you need to be a UK resident, at least 18 years of age, and have a regular source of income. Apart from these basic criteria, there are other factors that lenders look at.
Credit score
Debt consolidation loans for good credit scenarios are easily available through most lenders in the market. However, adverse credit, including defaults, missed payments, CCJs, and any previous bankruptcies, makes it harder for you to find lenders to accept your case. Still, there are specialist lenders who are willing to service borrowers with bad credit, but they offer debt at higher rates.
If you have a home or other major assets, a secured loan might also be a good option if your credit score is poor.
Income and affordability
Lenders may apply minimum income thresholds, such as £10,000–£15,000 per year. If not, they will certainly look at your ability to repay the monthly instalments comfortably alongside all your other commitments.
Existing debt level
Some lenders impose restrictions on maximum loan size. If your existing debt goes beyond that, they might refuse to offer you a loan. For most unsecured loans, £50,000 is the limit, but the amount you can borrow is also constrained by your credit score and income.
Existing relationship with the lender
Some banks, like Barclays and Halifax, do not provide debt consolidation loans to customers who aren’t account holders with their banks. They might also offer better terms to existing account holders than to other applicants.
Debt consolidation loans for veterans and military personnel
The UK doesn’t have dedicated debt consolidation products for veterans or active military personnel, but specialist lenders and credit unions that understand military pay and pension arrangements can be a good starting point. Standard high street lenders are also available on the same terms as any other UK resident, so it’s worth comparing both routes.
Costs, Rates and Fees
The table below summarises costs, loan amounts, and terms offered by various lenders in the UK for debt consolidation loans.
| Lender | Representative APR | Loan Range | Term |
|---|---|---|---|
| TSB / Nationwide | 5.6% | £7,500 – £25,000 | Up to 5 years |
| M&S Bank | 5.7% | £7,500 – £25,000 | Up to 5 years |
| Santander | 5.9% | £7,500 – £25,000 | Up to 5 years |
| Barclays | 6.3% | £15,100 – £20,000 | 2 – 5 years |
| Halifax | 6.9% | £7,500 – £25,000 | 1 – 7 years |
| Specialist / Bad Credit | 20% – 50%+ | Varies | Varies |
Representative APR means the rate offered to at least 51% of successful applicants. The rate you are offered may be higher depending on your personal circumstances. Rates correct as of May 2026 and subject to change.
Interpreting Rates and Representative Examples
The representative APR number shown above is not always the rate that you will get. Lenders are only obligated to offer this rate to 51% of applicants, so a lot will depend on your particular credit history and income. However, they are a good starting point to compare various lenders.
The scenario below helps you understand how debt consolidation works in reality.
| Before Consolidation | After Consolidation | |
|---|---|---|
| Total debt | £12,000 | £12,000 |
| Made up of | Avg. 22% APR | Single loan at 6.9% APR |
| Monthly payment | £360 (minimum payments) | £297 (fixed, over 5 years) |
| Time to clear | At minimum payments, 11 years | 5 years |
| Total interest paid | £8,400+ | £1,820 |
| Saving | — | £6,580+ |
Figures are illustrative. Actual savings will depend on your specific debts, the rate you are offered and the loan term you choose.
One important note: a debt consolidation loan spread over a longer period than your original debt might end up costing you more in absolute terms than the original debt. But since the payments will be spread out, the monthly outgo will be far lower than what you might have to pay otherwise. You should decide which option is best suited for your case.
How to Compare Lenders
There are several lenders in the debt consolidation market, and comparing them properly takes time. This is where working with a broker like ABC Finance can help. We do the legwork of comparing options for you.
If you’d rather work through it yourself, here are the key criteria to look at.
APR, not just the headline rate
Headline rate is the rate at which the loan is offered. APR includes that rate plus any fees that are being charged by the bank, giving you a better picture of your actual outgo per month.
Representative vs personalised APR
As mentioned above, the APR that is offered to you does not necessarily have to be the same one advertised by the lender. So instead of applying directly, always use a soft search or eligibility checker tools because hard credit searches can impact your credit score.
Loan term
A longer term can significantly bring down your monthly payments. However, it also means that you are paying out more in interest. It is always a better idea to choose the lender that offers you the smallest possible term that you can afford.
Early repayment charges
If there is a possibility that you might be able to repay your loan earlier than your expected repayment term, then it can significantly bring down the total interest you will have to pay. However, lenders often apply early repayment charges to avoid this situation. Make sure that you understand your lender’s conditions regarding early repayment before you apply.
Direct settlement
Direct settlement means that the lender repays your existing debts directly, which can reduce a lot of workload at your end. Moreover, it ensures that you cannot spend the loan amount for other purposes, keeping you true to your objective.
Total amount repayable
This is the key consideration for selecting the right lender. You should always choose a lender whose offer minimises the total amount repayable.
The Application Process
The process for applying for a debt consolidation loan is very similar to taking out a personal loan. Here are the main documentation requirements to keep in mind.
Documents Typically Required
Proof of identity, such as a valid UK passport or a driving license including your name, date of birth, and address history over the past three years, is required. Proof of address, such as a bank statement or a recent utility bill are also needed.
Lenders will ask for proof of income, such as payslips for the previous three months if employed or your SA302 if self-employed. They also require bank statements for the last three to six months in order to establish spending patterns and income.
Apart from this, details of all existing debts that are to be consolidated with lender names and current payment must be provided. Nowadays, many UK lenders are able to access your transaction history through Open Banking, which removes the need for you to gather this information manually.
Unsecured consolidation loans are usually approved within the same day in most cases, with funds being provided within three working days. For secured loans, the time taken is longer, such as two to four weeks, because the lender needs to obtain a valuation of the asset.
Make sure you use a soft search or eligibility checker before applying for any loan, because a full application can trigger a hard search, which might impact your credit file negatively.
When Debt Consolidation is Not Right and Alternatives
There are a few scenarios in which debt consolidation may not be the right solution for you. Firstly, if you have adverse credit, then the total cost of borrowing offered to you might be higher than the blended total cost of borrowing of your current debt, making the exercise futile.
Secondly, if the reason behind your existing debt is profligate spending, simply consolidating the debt will not solve the root cause of the problem. Lastly, if the total debt amount is too large, then a debt consolidation loan may not be able to cover the requirements. In such cases, there are other products that might be more suitable. We discuss some of these alternatives below.
DMP, IVA, and Other Options
Debt Management Plan (DMP)
Sometimes, a debt charity or an advisor may be able to set up an informal arrangement with your creditors where you make a single, reduced monthly payment and the money gets distributed between the creditors. The interest and charges are frozen.
DMPs do not damage your credit like a formal bankruptcy filing and aren’t legally binding because they are informal arrangements. It can take several years to complete the entire agreement.
Individual Voluntary Arrangement (IVA)
An IVA is a formal arrangement between the creditors and you wherein you make reduced monthly payments, and the money gets distributed to the creditors. Any remaining debt gets written off. Since it is a formal arrangement, an IVA can cause severe damage to your credit and be recorded on the Insolvency Register. This option is only suitable for those whose debt burden is nearly unmanageable. It provides a structured resolution to an otherwise unviable situation.
Balance transfer credit card
Credit card companies sometimes offer balance transfer cards at a 0% APR for 24 to 30 months as a promotional offer for new customers. For those who have large debts but a clear line of sight on how they intend to repay them within the next few months, it is an option worth considering. However, these cards are only offered to those with good credit. Secondly, the interest rate at the end of the promotion is extremely steep, so this method is unsuitable unless there is a clear plan of repayment before the promotional period expires.
The UK government’s Breathing Space scheme
The UK government offers a scheme to people in serious financial difficulties known as the Breathing Space scheme. In it, the debtor can take up to 60 days of legal protection from the creditor, during which time they can seek advice from a debt professional. Organisations like StepChange, National Debtline, and Citizens Advice offer free debt advice to individuals.
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Tools and Calculators
While evaluating debt consolidation as an option, it is often instructive to work out the actual numbers for yourself and understand the pros and cons of various situations. Debt Consolidation Calculators let you run various scenarios and give you a clear picture that might end up saving you money.
Debt Consolidation Calculator Overview
A debt consolidation calculator lets you enter your current outstanding balance, interest rate, or APR, and term for each outstanding debt, and then calculates your blended cost so that you can compare the proposed interest costs and monthly payments of any proposed consolidation scheme.
The calculator will show you a comparison between your current monthly payments and the revised monthly payments, and the current payment term to the revised payment term of the consolidation loan. It will also show you the total cost of borrowing, both current and proposed. Since the goal of consolidating is to lower overall cost, this last metric is the most important thing to note in a calculator.
Use our debt consolidation calculator below to model your own scenario. Once you’ve run the numbers, request a callback, and one of our advisors will talk you through the options available to you based on your circumstances.
[DEBT CONSOLIDATION CALCULATOR HERE]
Region and Local Considerations
Most mainstream debt consolidation lenders are available on a national basis, but there are certain regional considerations of note.
Credit unions are often geographically based and have membership only. These offer personal loans at competitive rates, especially for smaller amounts, and are an important party to be considered in your debt consolidation pool. You can find local credit unions through the Association of British Credit Unions (ABCUL) directory.
Debt consolidation loans secured by property, such as a home you may own, are impacted by the regional property values that are prevalent in the area where the house is located. The valuation of the house might determine the amount of the loan and the APR that you are offered.
Frequently Asked Questions
Will a debt consolidation loan affect my credit score?
Yes, applying for a debt consolidation loan will result in a hard credit search, which can lead to a temporary dip in your credit score. Multiple rejections in a short period of time can be quite damaging to your credit score. This is why it is important to make sure your application is well planned and considers all factors before you go in for an application.
Can I get a debt consolidation loan with bad credit?
Yes, you can get a debt consolidation loan with bad credit, but the pool of lenders available will be limited, and the interest rates will likely be higher. Specialist lenders are available who account for adverse credit if the applicant has otherwise stable income and recent credit behaviour has been positive. Secured loans are another option where you can get debt consolidation loans with low interest rates in lieu of collateral, such as your home.
How long does it take to get a debt consolidation loan?
Mainstream lenders usually offer a decision on unsecured debt consolidation loans within one day, and disburse funds within 1-3 working days. Secured loans may take anywhere between 2 and 4 weeks due to the valuation work and other legal processes.
Is debt consolidation the same as debt management?
No, debt consolidation involves taking up a single new debt in order to repay your multiple existing debts at a lower cost of borrowing. A Debt management plan is an informal agreement between the borrower and the creditors to allow restructured payments without having to resort to new credit.
Can debt consolidation loans be used for any type of debt?
Yes, almost all unsecured debts can be consolidated, including store cards, overdrafts, credit cards, and personal loans. However, there might be lender-wise restrictions, which is why it is important to go through the terms and conditions of each lender before going for a formal application process. Usually, secured debts like mortgages or student loans cannot be consolidated.
How can I get access to debt consolidation loans near me?
Most mainstream debt consolidation lenders operate UK-wide, so they are easy to locate. You have a few options: apply directly to high street banks, use a price comparison site, or speak to a broker. A broker like ABC Finance can be a good starting point if you’re not sure which type of loan suits your circumstances, or if you’ve been turned down elsewhere. Whichever route you choose, use a soft search or eligibility checker first so you can compare rates without leaving a footprint on your credit file.
The rates and figures shown in this article are for informational purposes only and do not constitute financial advice. Debt consolidation loan rates change frequently. Your eligibility and the rate you are offered will depend on your individual financial circumstances. If you are struggling with debt, free advice is available from StepChange (stepchange.org), National Debtline (nationaldebtline.org), and Citizens Advice (citizensadvice.org.uk).
About the author
Gary Hemming CeMAP CeRGI CSP
20+ years experience in property finance
This content was produced by our Commercial Lending Director, Gary Hemming. Gary has over 15 years’ experience in financial services and specialises in bridging loans, commercial mortgages, development finance and business loans. He is widely respected in his field and regularly provides expert commentary for specialist trade publications, specialist business press as well as local and national press.
