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Our Pick Of The Best Debt Consolidation Loans
Rachel Wait,Laura Howard
Contributor,Editor
Updated: Mar 01, 2024
If you have expensive outstanding debt – such as credit and store card balances – it could make sense to pay them off with one ‘debt consolidation loan’. This mean making just a single monthly payment to one lender. And, so long as the interest rate is lower, it could be cheaper and quicker to pay off what you owe.
Consolidating debt with a loan
There are two main options available if you’re seeking out a debt consolidation loan. If you’re looking to borrow more than £15,000, you could consider a secured loan. This is where you put up collateral – usually your home – as security. Interest rates can be particularly competitive on secured loans as lenders consider them to be less risky. Crucially, however, your property could be repossessed if you default.
An unsecured ‘personal’ loan is the other option. You don’t need to be a homeowner as no security is required. But the deals can be harder to qualify for. We carried out some research (March2024) on the best personal loans between £7,500 and £15,000 and have listed our findings, below.
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These deals are only for borrowers with top credit scores, while APRs are representative so you could be shown higher. Find more on how we ranked the loans in our methodology, below.
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- EAT
- Debt Consolidation Loans: Our Pick Of The Best
- What's Our Methodology
- How do personal loans work?
- What to consider before applying
- What are the alternatives?
Why you can trust Forbes Advisor’s ratings
Debt Consolidation Loans: Our Pick Of The Best
FEATURED PARTNER OFFER
TSB
5.0
Our ratings take into account a product's rewards, fees, rates and other category-specific attributes. All ratings are determined solely by our editorial team.
Representative APR
Early repayment penalties
Yes
Borrowing term
1-5 years
Representative Example
The representative APR example gives you an estimate of how much it might cost if you borrowed a certain amount of money. This helps you compare products and provides a guide on how much carrying a balance could cost. Your personal offer may vary from the representative APR example.
If you borrow £10,000 over 60 months with monthly repayments of £192.15 Total amount repayable will be £11,529. Representative 5.9% APR, annual interest rate (fixed) 5.9% p.a. Credit available subject to status.
Representative APR
5.9%
Early repayment penalties
Yes
Borrowing term
1-5 years
Representative Example
The representative APR example gives you an estimate of how much it might cost if you borrowed a certain amount of money. This helps you compare products and provides a guide on how much carrying a balance could cost. Your personal offer may vary from the representative APR example.
If you borrow £10,000 over 60 months with monthly repayments of £192.15 Total amount repayable will be £11,529. Representative 5.9% APR, annual interest rate (fixed) 5.9% p.a. Credit available subject to status.
Why We Picked It
TSB is offering a competitive rate on borrowing of £7,500 at just 5.9%. Loans can be taken over one to five years. You can borrow between £1,000 and £25,000, although rates may vary depending on the loan size and your credit score.
Pros & Cons
- Competitive rates
- Payment holidays available
- Early repayment penalties
FEATURED PARTNER OFFER
Tesco Bank
5.0
Our star ratings are based on several criteria relevant to personal loans. They are determined solely by our editorial team. For more information, see the methodology section.
Representative APR
6.1% (Clubcard holders)
6.5% without Clubcard
Early repayment penalties*
Yes
Borrowing term
1-5 years
Representative Example
The representative APR example gives you an estimate of how much it might cost if you borrowed a certain amount of money. This helps you compare products and provides a guide on how much carrying a balance could cost. Your personal offer may vary from the representative APR example.
If you borrow £10,000 over 60 months with monthly repayments of £193.02. Total amount repayable will be £11,581.20. Representative 6.1% APR, annual interest rate (fixed) 6.1% p.a. Credit available subject to status.
Representative APR
6.1% (Clubcard holders)
6.5% without Clubcard
Early repayment penalties*
Yes
Borrowing term
1-5 years
Representative Example
The representative APR example gives you an estimate of how much it might cost if you borrowed a certain amount of money. This helps you compare products and provides a guide on how much carrying a balance could cost. Your personal offer may vary from the representative APR example.
If you borrow £10,000 over 60 months with monthly repayments of £193.02. Total amount repayable will be £11,581.20. Representative 6.1% APR, annual interest rate (fixed) 6.1% p.a. Credit available subject to status.
Why We Picked It
Tesco is offering loans from £7,500 at 6.1% APR if you have a Tesco Clubcard. Non Clubcard holders will get a rate of 6.5%. You can borrow up to £35,000 with varying terms (up to 10 years). Loans of £7,500 can only be taken over a maximum five year term.
Borrowers can make overpayments, but full repayment is subject to early repayment charges.
Pros & Cons
- Competitive rates
- Can make overpayments
- Two month payment holiday option at the start
- ERCs apply
- Higher rate if you don’t have a Clubcard
FEATURED PARTNER OFFER
Santander
4.5
Our ratings take into account a product's rewards, fees, rates and other category-specific attributes. All ratings are determined solely by our editorial team.
Representative APR
6.2%
Early repayment penalties*
Yes
Borrowing term
1-5 years
Representative Example
The representative APR example gives you an estimate of how much it might cost if you borrowed a certain amount of money. This helps you compare products and provides a guide on how much carrying a balance could cost. Your personal offer may vary from the representative APR example.
If you borrow £10,000 over 60 months with monthly repayments of £193.47. Total amount repayable will be £11,634.60. Representative 6.2% APR, annual interest rate (fixed) 6.2% p.a. Credit available subject to status.
Representative APR
6.2%
Early repayment penalties*
Yes
Borrowing term
1-5 years
Representative Example
The representative APR example gives you an estimate of how much it might cost if you borrowed a certain amount of money. This helps you compare products and provides a guide on how much carrying a balance could cost. Your personal offer may vary from the representative APR example.
If you borrow £10,000 over 60 months with monthly repayments of £193.47. Total amount repayable will be £11,634.60. Representative 6.2% APR, annual interest rate (fixed) 6.2% p.a. Credit available subject to status.
Why We Picked It
Santander is offering competitive rates at this level. Loans can be taken over one to five years.
Pros & Cons
- Competitive rates
- Can make overpayments
- Early repayment penalties
*Based on a settlement figure as set out under the Consumer Credit (Early Settlement) Regulations 2004. This states that if you have less than 12 months remaining of your loan, providers can charge up to 28 days’ interest. An extra 30 days’ interest can be added on if there is more than one year of the loan term remaining, taking the total maximum penalty to 58 days’ interest.
** Late or missed loan payments will negatively affect your credit score
What's Our Methodology
We looked at the following when ranking our personal loans for debt consolidation:
- Interest rate:as measured by representative APR (these are fixed)
- Term:the repayment terms available on the listed best representative APR
- Flexibility: whether the lender charges a penalty for repaying the loan in full ahead of the agreed term
These deals are only for borrowers with top credit scores, while APRs are representative which means the one you are offered could be higher.
While these deals were correct at the time of publication, loan rates are changing freqently so always carry out a fresh search.
How do personal loans work?
Personal loans typically allow you to borrow anything between £1,000 and £15,000 (sometimes more) depending on your credit score and wider circ*mstances.
The cheapest rates overall are generally available against borrowing terms of between £7,500 and £15,000.
Repayment terms are set between one and five years, with a handful lasting up to seven years.
Personal loans are unsecured, which means they are not secured against an asset, such as your home. By contrast, secured loans are secured against your home, which means if you default, the lender can take measures to repossess it.
Pros
- One monthly payment to a single lender
- May be able to reduce the amount of interest you’re paying on your debt – rates are most competitive for loan amounts of over £7,500
- Reducing the amount of interest helps clear debts faster
- Repayments are fixed, making it easier to budget
- Choice of borrowing terms, usually up to five years
- Paying on time each month can help to improve your credit score.
Cons
- Not all lenders allow you to use a personal loan to consolidate debt, so check before you apply
- Most rates only available to applicants with top credit scores
- Depending on the APR you are offered, monthly payments could end up being higher than they were before
- Payments are not flexible so if you miss a payment, this can affect your credit score
- The longer the term of your loan, the more you will pay in interest
- Early repayment charge on one or more of your existing debts could be payable if you clear them early with a personal loan.
What to consider before applying
If you want to use a personal loan to consolidate existing debts, it’s important to assess whether doing so will definitely save you money overall.
To do this, first check whether you will have to pay any early repayment charges for clearing your original debts before the end of the term. If so, this may outweigh any savings you’d make by taking out a personal loan.
Next, consider exactly how much you need to borrow (add up the total cost of your current debt, including any early repayment charges) and assess whether you are likely to be able to borrow that amount.
You’ll also need to think about how long you need to repay the amount borrowed – remember that if you choose a longer loan term although your monthly repayments may be lower you’ll pay more in accumulated interest.
If it looks like you’ll end up paying more for a personal loan than if you kept your debt where it is. If you don’t think you’ll be able to afford your new single monthly repayment, a personal loan is unlikely to be your best option.
Likewise, if you are fairly close to settling your existing debts, consolidating them is unlikely to make good financial sense.
What are the alternatives?
Amoney transfer credit cardallows you to move funds directly from your credit card into your bank account. You can then use these funds to pay off your existing debt – providing the credit limit is high enough.
Should you choose a 0% money transfer credit card, you won’t need to pay any interest for a set time. However, like balance transfer cards, there is usually a transfer fee to pay (often around 4% of the sum involved) and once the 0% deal ends, interest will kick in.
Secured loan
Asecured loanusually allows you to borrow a larger amount than a personal loan (often £25,000 or more) and you can often repay it over a much longer timeframe (up to 25 years). Interest rates can also be lower than for personal loans.
However, the big drawback is that secured loans are secured against your home – which means if you cannot keep up with your repayments, you risk losing it. They should therefore only be considered if you’ve considered all other options and you’re confident you can make your repayments each month.
This kind of secured loan is sometimes called a ‘second charge’ mortgage, because it is effectively a separate loan on top of your main mortgage.
It can be a useful option if you don’t want to remortgage (see below) because doing so would incur an early repayment charges on your existing mortgage.
Release equity from your home
Another option is to remortgage and release equity from your property – it’s usually better to do this if your existing mortgage deal is coming to an end, otherwise you may have to pay an early repayment charge.
Providing your property’s value – and therefore the amount of equity in your home – has increased, you could choose to take out a new, larger mortgage and use some of the equity to pay off your other debts.
However, bear in mind the size of your mortgage loan will increase so your monthly payments are also likely to go up, even if you secure a mortgage with a lower rate of interest.
What’s more, because you’ll be borrowing over a longer period of time compared to a personal loan or credit card, you’ll end up paying more in interest.
Also be aware that should house prices fall, the equity in your home is also likely to. This could potentially leave you in negative equity, where the size of your mortgage is larger than the value of your property. And finally, your property will be at greater risk of being repossessed.
Forbes Advisor adheres to strict editorial integrity standards. To the best of our knowledge, all content is accurate as of the date posted, though offers contained herein may no longer be available. The opinions expressed are the author’s alone and have not been provided, approved, or otherwise endorsed by our partners.
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Is a debt consolidation personal loan right for me?
If you have debts in various places, such as credit and store cards and other loans, one tactic you might consider is consolidating them in one place. You can do this by taking out a debt consolidation loan that is large enough to allow you to clear the other balances, leaving you with a single monthly payment, hopefully at a lower rate of interest.
Range of loans we compare –
- Lenders on our panel offer loans from £1,000 to £50,000, with eligibility based on your circ*mstances.
- Minimum repayment period is 1 year. Maximum repayment period is 10 years.
- APR is subject to lender and status and can range to a maximum of 49.9%.
- Here’s what a representative example might look like:
Assumed borrowing of £7,500.00 over 24 months at a nominal annual rate of 5.9% (fixed) would result in a representative rate of 5.9% APR (fixed), 24 monthly repayments of £331.55, total amount repayable is £7,957.14. Credit available subject to status.
What are the borrowing limits for debt consolidation loans?
Debt consolidation loans are widely available up to £15,000 but some lenders have a maximum loan of £25,000. Lenders will assess your credit score and your general financial situation when determining how much to lend to you.
How long will I have to repay my debt consolidation personal loan?
You choose the term of the loan, which will be somewhere between 12 and 60 months, although some lenders offer terms of 72 or 84 months. A longer repayment term allows you to spread the cost and reduce your monthly payments, but bear in mind that you’ll be paying interest for longer and will pay back more overall.
What’s the rate of interest on a debt consolidation loan?
The interest rate on a debt consolidation loan will depend on various factors, such as your own financial situation, including your credit score, and the prevailing economic conditions at the time.
The size of debt consolidation loan you are looking for will also affect the rate. The most competitive rates tend to be for loans of £7,500 and above. The interest rate is fixed for the duration of the loan, meaning you can budget for what you need to pay each instalment.
Can I pay the loan off ahead of schedule?
Yes, but you will probably have to pay an early repayment penalty worth up to one or two month’s interest.
What happens if I can’t pay what I owe?
If you are late or miss a payment, you may be charged a financial penalty and the debt may be rescheduled so your subsequent monthly instalments increase.
If you simply can no longer afford repayments, the lender may take legal action against you to recover what it is owed. Missing payments will also affect your credit rating, which will make it harder for you to obtain credit-based products and services in the future.
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The Forbes Advisor editorial team is independent and objective. To help support our reporting work, and to continue our ability to provide this content for free to our readers, we receive payment from the companies that advertise on the Forbes Advisor site. This comes from two main sources.
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The comparison service on our site is provided by Experian Limited on a non-advised basis. Forbes Advisor has selected Experian Limited to compare a wide range of loans in a way designed to be the most helpful to the widest variety of readers.
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