Will You Be Approved For Debt Consolidation With Bad Credit
Debt consolidation is a solution that enables you to refinance all of your existing debt from multiple sources into one monthly repayment to a single lender. Many people who are in need of a debt consolidation loan may be concerned with how their credit rating might affect approval, and the terms of their loan.
In some cases seriously bad credit can lead to refusal of a consolidation loan, but this is rarely the case. Even with bad credit it is more than likely that you will be approved, though the terms and conditions do depend on your credit scores among other factors.
The conditions that could be affected by a bad credit score include:
Type of Loan
There are two main categories of debt consolidation loan available; unsecured and secured. Unsecured loans are a bigger risk for lenders, so if your credit rating is bad then they may compensate for this by increasing the interest rates on your loan.
In the case of a secured loan the money is lent to you against your property, such as your home. This is much less risk for a lender, and even if you have very bad credit then they should still offer decent rates on your loan.
The amount of debt you owe, and the state of your credit history, will be analyzed during the process of drawing up the consolidation loan. Bad credit can cause lenders to increase interest rates on unsecured consolidation loans, to make up for the risk.
As a general rule, the worse your credit, the higher interest rates you can expect, and therefore the tougher it might be to make a consolidation loan worth your while, and to find the best deal.
Improve Credit Score With Debt Consolidation
Debt consolidation is usually an option that is chosen by people who are experiencing serious problems with debt, and many of these people have bad credit scores as a result of the situation they are in. Debt consolidation can actually help to improve your credit score in the long term, if you are able to keep up your repayments and pay off your debts.
Having bad credit is unlikely to affect your approval for debt consolidation, but is likely to have an impact on the interest rates, length of repayments, and sometimes the type of loan you are accepted for.