What Are the Best Consolidation Loans in the UK? (2024)

If you’re trying to manage your debt, you might be asking, ‘What are the best consolidation loans in the UK?’ This is a good question, and we’re here to help answer it.

Each month, we provide advice to over 170,000 people on how to deal with money worries. We know dealing with debt can be tough, but don’t worry, you’re not alone. We’re here to help you understand your options.

In this article, we’ll explore:

• What a debt consolidation loan is.
• Different types of debt consolidation loans.
• How to choose the best loan for you.
• The pros and cons of debt consolidation.
• Other ways to handle debt.

Remember, choosing the right debt solution is very important as it can help you feel less stressed about money and make your life easier. Let’s get started and learn more about the best consolidation loans in the UK.

Types of Debt Consolidation Loans

As outlined by MoneyHelper, there are two types of debt consolidation loans: secured and unsecured debt consolidation loans.

Secured debt consolidation loans can be risky as the amount you’ve borrowed is secured against an asset. If you don’t pay back on time, you risk losing these assets. On the other hand, unsecureddebt consolidation loans are generally less risky as they aren’t secured against your assets.

The Best Consolidation Loans UK

There is no ‘best consolidation loan’ for everyone. However, it is possible to find the best consolidation loan for your personal situation. Read on for more information.

The Best Consolidation Loan for Eligibility

Before you even get to the credit check part of the process, some factors can prevent you from applying for a debt consolidation loan with the big UK banks.

At the time of writing, only Santander requires applicants to be at least 21 years old. All of the other banks mentioned above only need applicants to be 18 years old. However, this isn’t the biggest problem.

A requirement for Nationwide, NatWest, Barclays, Lloyds and RBS is that you should already have a bank account with them before applying for a debt consolidation loan. If you are not already a customer, you may not be able to get a loan.

In many cases, they need you to have opened this account one to three months in advance. This means you can’t just open an account and then apply for a personal loan.

However, some banks allow applications from non-customers. These include Santander, Halifax and HSBC.

Winners: Santander, HSBC and Halifax

Losers: Nationwide, NatWest, Barclays, Lloyds and RBS

The Best Consolidation Loan APR Rates

The APR rates advertised on bank websites should be taken with a pinch of salt. Most of the time, they highlight the best-case scenarios when in actual fact few people can get loans with such low APR rates.

Nevertheless, looking at this rate and the maximum APR rate they will charge gives a decent indication of how much interest you might need to pay.

The lowest representative APR rates are found at Nationwide, Santander, HSBC and Halifax – 2.9%, 3%, 3.3% and 3.45%, respectively. These are the rates usually for loan amounts betwefinding

All other banks listed earlier have a representative ra is possiblete of 3.9%, except for Lloyds. Their best offering was a harsher 5.5%.

Most of these banks’ maximum APR rate is 29.9%, although Santander and Nationwide cap their APR at 24.9%. And the best of them all is found at HSBC. The most interest you pay with their loan is 21.9%!

Winners: Santander, HSBC, Nationwide

Losers: Most of the rest

Factors Affecting the Loan APR

There are several factors that could affect your loan APR. These include your credit score, repayment history, debt-to-income ratio, interest rate type, and the loan amount and term. From my experience, lenders make interest calculations using these factors.

The Best Consolidation Loan for Repayment Holidays

Repayment holidays may be possible under challenging circ*mstances with any bank, but these are usually judged on a case-by-case basis.

However, some UK banks promote repayment holidays as part of their loans. You will need to be accepted for the repayment holiday but if you are, they can help you manage your loan repayment from the start.

The UK banks promoting potential repayment holidays are RBS and NatWest. Both banks state that some customers can start the first three months of their loan without paying anything.

The real winner here is Lloyds. People who have a loan with Lloyds may be able to access two repayment holidays every year that they have a loan. This is a fantastic safety net and a great way to help people manage their repayments in line with the unforeseen events of real life.

Winners: Lloyds, RBS and NatWest

Losers: All the rest!

The Best Consolidation Loan for Early Settlement

Early settlement is when you pay off your loan early. Most banks offer the benefits of early repayment, but you must pay additional fees to clear the loan before it is due. For example, to clear a Lloyds personal loan, you must pay as many as 58 days of interest. Barclays is slightly better as you only have to pay a maximum of 30 days of interest.

However, there is one bank that excels the rest in this department. HSBC claims you can clear a personal loan with them for free anytime.

Winner: HSBC

Losers: The rest!

Who Offers Debt Consolidation Loans in the UK?

There are lots of banks and building societies that offer debt consolidation loans in the UK. Most of the time, they are advertised as personal loans. However, as they can be used for debt consolidation, they often take on the name of debt consolidation loans.

Here are eight of the UK’s biggest banks that offer this type of loan:

• Santander
• HSBC
• NatWest
• Halifax
• Barclays
• Lloyds
• Royal Bank of Scotland
• Nationwide

Our Overall Top Pick!

Our overall top pick for the best debt consolidation loan UK residents can find right now is HSBC. They don’t require you to be a customer, offer free loan settlement and have a much lower maximum APR rate. Lloyds is also worth considering because of those repayment holidays each year.

Advantages and Disadvantages of Debt Consolidation

An excellent financial strategy for finding the best debt consolidation loan for your needs is to weigh up the pros and cons.

Pros of debt consolidation

• Easier to budget repayments
• Makes managing debt simpler
• Possible credit rating protection
• potentially reduced monthly payments

Cons of debt consolidation

• Debt consolidation loans aren’t available to all
• Potentially higher repayment overall
• Possible additional fees or charges

The true cost of a bad debt consolidation loan

Think about this.

If you get a £30,000 debt consolidation loan at 4% on a 15 year term, it’ll cost you £221 per month to pay back. That exact same loan at 5% is about £18 per month more expensive.

Well, that’s a full £2,916 more expensive over the entire term.

Fill out the short form below to access the best debt consolidation loan rates available from the UK’s leading lenders.

Additional Considerations Before Applying

After weighing up the advantages and disadvantages of debt consolidation, you should consider a few other factors before applying. These factors include your current financial situation, whether or not the consolidation will actually lead to savings, and how much the hidden fees and penalities could cost.

Making an interest rates comparison and doing your research on lender credibility is also advisable before settling on a debt consolidation loan.

Alternative Debt Solutions in the UK

Debt consolidation loans are not the only way to manage your finances. There are many other debt solutions offered in the UK. These include Individual Voluntary Arrangements (IVAs), Debt Management Plans (DMPs), and bankruptcy. I’ve put together a guide of debt consolidation alternatives to help you clear your debt.

You can also receive free debt advice services from top UK charities. These include StepChange and the National Debtline.

Frequently Asked Questions (FAQs)

Does debt consolidation hurt credit score?

A debt consolidation loan could hurt your credit score initially. However, if you make payments in a timely manner, your credit score can improve in the long run.

Can you consolidate different types of debt?

Yes, absolutely! You can consolidate different types of debts such as credit card debts, payday debts, overdrafts, and even debt built up on store cards. These debts can be combined into one single debt.

When is debt consolidation not a good idea?

Debt consolidation would be a bad idea if you have a poor credit history. In this case, lenders may consider you a high risk, and you may not receive a favourable rate. As I see it, if the interest rate is higher than what you are currently paying, it is a good idea to look for alternatives.