The best personal loan deals for consolidating debt - according to a finance expert

Although you may not be able to become completely debt-free this year, you could make your debt easier and cheaper to repay (Photo: Shutterstock)

by Derin Clark

For many, being debt-free is a major financial goal, and getting rid of debt repayments is a key way of freeing up money that can be used to start a savings fund. Although you may not be able to become completely debt-free this year, you could make your debt easier and cheaper to repay by consolidating your debt.

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Consolidating debt not only makes the debt more manageable as it will cut down on the different monthly repayments you make, but also often reduces the amount of interest owed on the debt making it quicker to clear.

There are various options available if you’re looking to consolidate debt. For example, if you have a small amount of credit card debt, transferring outstanding balances to a 0% balance transfer credit card could be the best option. For those with a mixture of credit card and loan debts, consolidating debts with a personal loan may be the best option.

To help you decide if a personal loan is a good option for consolidating your debt, we’ve looked at the lowest loan rates available for different debt amounts, as of 21 January 2021.

Loan options available for consolidating £5,000 debt

If you’re looking to consolidate £5,000 worth of debt to be repaid over three years, personal loan rates start from 3.40% APR.

Tesco Bank offers 3.4% APR on its Online Personal Loan, which is available to both new and existing customers. A £5,000 loan to be repaid over three years would have monthly repayments of £146.17 and the cost of the loan would be £262.12, meaning that a total of £5,262.12 would be repaid.

The next lowest loan rate that will enable you to consolidate £5,000 worth of debt that is repaid over three years is 3.5% APR. Both Hitachi Personal Finance and MBNA Limited have loans at this rate. Both these loans are available to new and existing customers and have monthly repayments of £146.39. The total cost of these loans is £270.04, so you would repay a total of £5,270.04.

Loan options available for consolidating £10,000 debt

If you want to consolidate a higher debt of £10,000 and repay it over five years the lowest rate available is 2.8% APR. Sainsbury’s Bank, cahoot and TSB all have personal loans that offer this rate for these terms. The Sainsbury’s Bank loan is only available to those who have been a Nectar member for a minimum of six months, while the loans from cahoot and TSB are available to new and existing customers. They all have monthly repayments of £178.64 and the total cost of the loan is £718.40. This results in you repaying a total of £10,718.40.

When considering a personal loan, it is important to be aware that the headline rate, which we have highlighted, may not be the rate you are given. Instead, the rate you are offered, along with whether your loan application is accepted at all, depends on your credit score – the higher the credit score usually means that your application will more likely be accepted and you’ll be offered a better rate. You can find out more about how to check your credit score for free here.

Loan options available for consolidating £50,000 debt

Normally a maximum you would be able to borrow through a personal loan is £20,000, so if you are looking to consolidate debts above this amount, you may have to look at a different option. If you are confident that you will be able to make the repayments, an option if you are a homeowner is a secured loan, but you should be aware that secured loans are more risky than personal loans and can result in your losing your home.

A secured loan will often enable you to consolidate non-mortgage debts over £20,000, with £50,000 or more not being unusual. But these types of loans will require you to put an asset, usually your home, as security against the loan so that if you are unable to make repayments the loan company can seize your asset – your home – instead.

A secured loan can be a way to reduce the repayments on a large amount of debt, but due to the risks involved, it is advisable that you get financial advice and consider other options available, before making a decision.

You can see all the personal loan rates available and calculate the repayments on the amount you want to borrow on the personal loan chart