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What is a personal loan for debt consolidation?

Written byKoyo Loans
Last Updated18th November 2022
Contents
  • Unsecured personal loans & debt consolidation explained 
  • When is a personal loan a good idea to consolidate debt? 
  • When is a personal loan for debt consolidation not a good idea? 
  • How to apply for a personal loan for debt consolidation 

If you have multiple sources of high-interest debt, you might benefit from a debt consolidation loan. But who is this type of loan for, and how do you apply? Below, we provide you with the lowdown on debt consolidation loans and explain how Koyo Loans could help you.

Unsecured personal loans & debt consolidation explained 

An unsecured personal loan can be obtained for debt consolidation, you can apply for one in order to pay off some of your high-interest debts. For instance, if you have multiple credit card debts, you can use the money from a low interest rate, unsecured personal loan to consolidate those debts and pay them all off at once. 

You are then only responsible for meeting the repayments on the personal loan that you’ve just taken out, as opposed to the ongoing credit card debts that you’ve been burdened with for however long. When done properly, a personal loan for debt consolidation can save you money and stress and could help you wrestle back control of your finances. 

When is a personal loan a good idea to consolidate debt? 

While a personal loan for debt consolidation won’t be suitable for everyone, they do make sense in certain circumstances. For instance, it could help you if:

  • You have a good credit score: Although personal loans for debt consolidation are available to people with various credit histories, they’re only likely to be beneficial if you have a good credit score. This is because people with good scores can access lower interest rates, meaning the amount they pay back is likely to be lower than the debts that they already have. 
  • Your debts are high interest: If you find yourself paying off high-interest debts like credit cards, then a personal loan for debt consolidation could be a good option. For instance, the average personal loan rate, according to Experian, is 9.41%, while the average credit card interest rate sits around 16%. If you can secure a personal loan for a lower interest rate than you’re currently paying and with favourable repayment terms, you’re likely to save money in the long run. 
  • You have a plan: One of the reasons that credit card debt can get quickly out of hand is that it’s a type of revolving credit, and you can make the minimum payment each month. In other words, if you aren’t disciplined with repayments, you could stay in debt forever. On the other hand, a personal loan for debt consolidation comes with strict repayment plans. You’ll need to adhere to these, making them an attractive proposition to many. 

When is a personal loan for debt consolidation not a good idea? 

Conversely, you might not enjoy the full benefits if: 

  • You aren’t disciplined: When you receive a personal loan for debt consolidation, you need to use the money from that loan to pay off your outstanding debts right away. You should also look to change your spending habits to ensure you don’t get into high-interest debt again. If you lack financial discipline, a personal loan for debt consolidation won’t necessarily help you. 
  • You don’t have a great deal of debt: If you only have a few hundred pounds worth of debt, even if you make repayments to multiple sources, it’s probably not worth your while applying for a personal loan for debt consolidation. 
  • You have a poor credit score: One of the biggest advantages of a personal loan for debt consolidation is that it often enables you to save money. But if you have a poor credit score, you will probably be offered a loan with high-interest payments. This can make it much less likely to save you money in the long run. 

How to apply for a personal loan for debt consolidation 

At Koyo Loans, we offer unsecured personal loans for debt consolidation between £1,500 and £12,000. 24.9% APR Representative. Our unsecured personal loans could help you regain control of your finances. Use our loan calculator today to see how much you could borrow if you think that a personal loan for debt consolidation is suitable for your current financial circumstances. 

Koyo Loans is the trading name of BETR Technology Ltd. Company No. 11483187. Registered Office: Huckletree Soho, Ingestre Court, Ingestre Place, London, W1f 0JL

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