Do Debt Consolidation Loans With A Bad Credit Score Exist?
A few lenders may provide you with debt consolidation loans with bad credit scores, but they will charge very high interest rates.
Consolidation seems to be the most effective solution when you are heavily indebted. Various lenders are out there who provide consolidation loans to subprime borrowers, but do they actually exist? Is it possible for a lender to consolidate your loans despite an abysmal credit report? The fact is that many people do not feel certain about getting out of indebtedness with a suitable loan or a credit card. According to a survey, many subprime borrowers have reported that consolidation turned out to be the opposite of what they claim.
Credit card consolidation
Some lenders provide 0% balance transfer credit cards to those who are struggling with the settlement of their credit card debt. You transfer the balance of your current credit cards to a new card with a 0% introductory APR. It means if you discharge the whole debt, you can escape paying interest.
But the fact is that 0% balance transfer credit cards will not be fruitful.
You will qualify for a very small credit limit. If your credit card balance is too high, you will not be approbated. Lenders approve 0% balance transfer cards for a large amount only when your credit score is good. The repayment term for your balance transfer card cannot be more than 6=six months with a bad credit rating. Because of a lower limit, you will not be able to settle your dues within this timeframe.
After the end of six months, interest rates will be very high. You will end up paying down even more than you would otherwise. Therefore, 0% balance transfer credit cards are fruitless. So, next time when you come across any 0% balance transfer deal, you should immediately understand that this is a path to an abyss of debt. It cannot be of any help to you.
Getting large consolidation loans with bad credit ratings is more often than not impossible
Almost all lenders advertise on their website that large consolidation loans could be easily approved if your credit rating is stellar, but many people have expressed surprise that they were repudiated for a consolidation loan even if they had a good credit rating. Now, the question is why lenders do not accept your consolidation application despite a good credit score.
This is because consolidation increases the risk on part of the lender.
Suppose you took out £5,000 from four lenders. Now the total balance you owe is £20,000. Borrowing £5,000 from a lender is quite easy because a lender could take on the risk of non-payment of £5,000, but if you try to borrow straightaway £20,000 from a lender, they would certainly be loath to lend you money.
Even if you are certain about your repaying capacity, your lender would not want to take the chance that you fall sick, lose your job, have another child, or part ways with your spouse. Once you fall behind on the payment, you will plunge into debt. It will be even more challenging for you to pay off the debt.
Bad credit consolidation loans carry high interest
If you have payday loans, bad credit loans or personal loans, you might try to consolidate them into one large personal loan. Most of the lenders will not be able to approve your application if your credit score is not stellar and the total borrowing amount is large. However, you can manage to receive approval for small consolidation loans despite a bad credit score, but high interest rates will be charged. Some lenders may charge you up to 50% APR and sometimes even more.
A lender might advertise that a consolidation loan for bad credit with low interest rates is available, but practically, they charge a high interest rate. It is normally a bad idea. On the surface, consolidation loans seem very good because you will be able to settle your debt in fixed instalments over a period of time. Now, you do not have to feel the burden of heavy monthly payments. But on the other hand, you are tying yourself to high interest. You will keep paying down the interest for several years.
Soon after a couple of months, you will start struggling to repay the debt. Missed payments will lead to additional interest payments and late payment fees. This will continue to accumulate your debt. Bear in mind that the longer the repayment term, the more you will pay down in interest. This is because it reduces the size of monthly payments.
Do not forget that payday loans are capped at 0.8% interest per day. No lender is permitted to charge more than that. If you consolidate payday loans, you will end up paying more than that, which is illegal. It would break the payday loan price cap. From this, you can conclude that you would end up paying a lot more than you have borrowed. Therefore, consolidation loans are exorbitant.
Involving a guarantor will make you worse
Some lenders target subprime borrowers and, therefore, provide guarantor loans to them. By involving a guarantor, you will be able to qualify for a loan for bad credit with a low interest rate. This is because involving a guarantor would help lower the risk on the part of the lender. They can turn to the guarantor when you make a default.
Involving a guarantor cannot help you qualify for a loan at lower interest rates.
Once you manage to obtain guarantor loans, you will be tied to payments for a long period of time. If your financial condition worsens – for example, you lose your job, or you fall sick – you cannot abdicate discharging your debt. Not only will this cause financial problems to you, but it will also drag your family members or friends who have entered into the contract as a guarantor.
Secured loan options are dangerous
A secured loan option could prove to be an ideal option when you have a poor credit score, but it involves a lot of risk. If you struggle with payments, you will lose your house. However, if you have unsecured loans, you do not have to be afraid of losing your house. You can simply pay less to your lender, or they can propose another repayment plan that sounds best to your current financial situation.
The bottom line
Debt consolidation loans are available on the market, but they come with a very small amount. They do not last for more than six months. It is vital to have a good credit rating to qualify for consolidation loans. If you receive approval despite a bad credit rating, they will be exorbitant. Alternatives like guarantor loans and secured loans to discharge your existing outstanding debts also do not have impressive benefits.
