Can I Get A Debt Consolidation Loan Without Collateral?

A debt consolidation loan allows you to take out a new loan to combine and repay multiple debts into one easy to manage monthly repayment.

For borrowers looking to consolidate their debts, there can be a lot of financial pressure and anxiety about whether they will qualify.

In this guide, we look to answer the key question that lead you here – can you get a debt consolidation loan without collateral, as well as explaining some other key concepts.

Is it possible to get a debt consolidation loan without collateral?

Yes, you can get a debt consolidation loan without collateral.

There are two main types of consolidation loan, a secured debt consolidation loan and an unsecured debt consolidation loan.

In simple terms, the secured version requires you to use your property as security for the loan, while an unsecured loan does not require security, or collateral.

Read on to find a deeper breakdown of what each option is, how they work and how to choose the right one.

Can I Get A Debt Consolidation Loan Without Collateral

What is a secured debt consolidation loan?

A secured debt consolidation loan allows borrowers to combine multiple debts into a single loan, which is secured against a property. This is also known as a homeowner loan.

There are pros and cons to using your property as security for the loan. The key pros are:

It is easier to qualify for a secured loan as the lender has collateral. This reduces their risk in the event of default.
The interest rates charged on secured lending are lower than those on unsecured finance due to the lower risk posed to the lender. For more read our guide to secured debt consolidation loan rates.
You can borrow larger amounts using secured finance.
You can extend the loan term for anything up to 30 years, which has the potential to greatly reduce your monthly repayments.
You may find it easier to qualify if you have bad credit, using a bad credit debt consolidation loan.

There are some disadvantages to consider:

The underwriting process is a little longer than unsecured finance, and takes anything from 5-14 days in most cases.
As the loan is secured against your property, your home may be at risk if you do not keep up repayments.
You have to be a homeowner with sufficient equity in your property to qualify.

What is an unsecured debt consolidation loan?

An unsecured debt consolidation loan is a form of personal loan that can be used to consolidate debt.

Unlike a secured loan, unsecured loan providers do not take any collateral for the debt, however your credit file will still take a hit if you fail to keep up repayments.

Here are the main pros to consider:

Lending can be completed quickly, often within 24 hours of applying.
The application process is simple and there is very little paperwork.
As you’re not offering collateral, your home is not at risk.

And here are the cons:

Your maximum loan size will be much lower
Your monthly repayments will be higher
You may struggle to qualify if you have bad credit (or pay a very high rate)
You won’t save as much money each month.

Which option should I choose?

Both options allow you to save money and move multiple debts into one simple monthly payment.

At ABC Finance, we only offer secured debt consolidation loans, and we do this because the potential savings are higher. Our debt consolidation loans save our customers an average of over £700 per month!

To find out how much you could save, try out debt consolidation loan calculator.

They’re also more affordable, due to the lower monthly repayments, which makes things much easier each month.

That said, not everyone is a homeowner, so if you’re not a homeowner, or if you’re borrowing under £5,000, unsecured finance may be a better fit.

Are there other ways to consolidate debt?

Yes, loans aren’t the only way to consolidate debts, there are other ways to do so.

Before committing to a loan, consider the following:

Remortgage – A remortgage involves taking out a new mortgage to pay off your current one. Remortgages are ideal for debt consolidation as long as you have sufficient equity in your property and no early repayment charges on your property.
Balance transfer credit cards – If you’re looking to consolidate credit card debt, consider a 0% balance transfer deal. This could save you interest and reduce your monthly outgoings.

What can I do to improve my chances of qualifying?

The best way to improve your chances of qualifying for a debt consolidation loan is to use a broker.

A good debt consolidation loan broker can access the whole market, meaning that if you have a better chance of finding a deal to suit you.

Aside from that, consider whether it’s possible to pay off debt strategically. For example, if you have a debt with a small balance but high repayments (for example, a loan that’s nearing the end of its term), repaying this could balance the books without the need to consolidate all debts.

Improving your credit score will improve your chances of success and of getting a better deal.

Finally, aim to keep up all repayments and keep credit card balances within their limit in the lead up to your application.

Most lenders will view recent financial problems more cautiously than historic ones.

What should I do if I can’t afford a debt consolidation loan?

If you can’t afford your current debts, and either don’t qualify for a debt consolidation loan, or can’t afford one, you should do the following:

Contact your creditors – Explain that you’re struggling and look to come to an arrangement. They may be willing to pause interest, offer a reduced settlement figure or even a payment break. While this could negatively impact your credit score, it could help to keep your head above water.

Consider debt management – Debt management solutions such as an individual voluntary arrangement (IVA) could help you to end the debt cycle. While this will impact your credit file, again, it can be a way out.

There is free financial support available to discuss management solutions from StepChange, Citizens Advice, MoneyHelper or National Debtline.