"I'm in debt but my credit rating is poor. Can I get a debt consolidation loan?"
This is a common question because obviously, if you are already in debt, your credit rating is likely to have been affected.
What does "poor credit rating" mean? Your credit rating is a file that contains information from all the companies you have had financial dealings with. They all supply information to the credit reference agencies about how you make your payments. If you have ever made a late payment, missed a payment, been regularly overdrawn or had cheques bounced or direct debit payments refused, all this contributes to a bad credit rating. If you have actually been taken to court over a debt and had a county court judgment (CCJ) made against you, this gives you a very black mark on your credit file. On the other hand, factors that show stability in your life, such as owning your home, having lived in the same place for a long time, or having steady employment, all contribute to a positive credit rating.
So is it possible to get a debt consolidation loan with a poor credit rating?
Of course it will be harder, because loan companies see you as more of a risk. But possible - yes. There are many lenders out there who specialise in offering debt consolidation loans to people with a poor credit rating. You can see this from their ads. Why would they do this? Because they reckon you will be desperate. You will have to pay their high interest rates because you can't find a loan anywhere else.
Should you take their offers? If you have a poor credit rating and a company seems very anxious to offer you a debt consolidation loan, should you be suspicious? Generally, yes. You need to check out the company very carefully. Some lenders are just there to make as much money as possible out of you. You may only discover after you have entered into a binding agreement that they have ultra-high interest rates, unfair penalty terms, or huge monthly payments.
The easiest way to obtain a debt consolidation loan when you have a poor credit rating is if the loan is secured on your home. Lenders aren't so worried about your previous payment record if they have security. But it may be harder if you already have severe mortgage arrears. And if you don't trust your ability to keep up regular payments, be very careful about the risk to your home.
So yes, you can get a debt consolidation loan with a poor credit rating. But don't let your desperation push you into taking the first offer you come across. Find a good broker, counsellor or other adviser who can help you choose a lender who will treat you fairly. Otherwise you may find you are worse off than you were before.
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