Simplifying your borrowing with a consolidation loan

In this post, we weigh up the pros and cons of consolidating existing borrowing into one payment with a consolidation loan.

If you’d like to clear and simplify your borrowing, you may want to consider a consolidation loan. Managing several credit commitments all at once can be challenging.

Finding time in our busy lives to keep track of it all can lead to financial mistakes like missing payments that may negatively affect your credit score. Not to mention the potential high monthly interest rates on some borrowing, such as credit cards, store cards, personal loans, and overdrafts.

Your borrowing can become particularly expensive if you are not clearing your credit card balances each month and choosing to make the minimum payment. According to the Money Charity, in April 2022, a credit card on an average interest rate would take 25 years and 2 months to repay if you’re only making the minimum legal repayments every month.

With a consolidation loan, you can combine and repay all your outstanding credit balances into just one monthly payment. In doing so, you’ll no longer need to manage various payments and monthly commitments, as these are replaced by one fixed payment each month over an agreed period, for example, three or five years.

Plus, a consolidation loan may reduce the amount of interest you pay by having all your debt in one place at a lower interest rate. However, it may extend the overall repayment time, so ahead of choosing to consolidate, please consider the total interest paid in total as this may be more than your existing arrangement.

Is a consolidation loan the right option for me?

If you have multiple credit commitments, a consolidation loan could be suitable. Still, to know for sure, you need to consider both the pros and cons of this decision. And, of course, assess your current financial situation and what plans or potential life events you have coming up that may impact your finances. We’ve compiled some pros and cons of consolidation loans so you make the right choice for your unique circumstances:


  • You could reduce your monthly repayments: If you have several credit commitments, it may be more cost-effective to consolidate to avoid continuing to accrue interest.
  • Lower overall interest: Consolidation loans tend to have lower rates than some credit cards or even unsecured loans, depending on your credit score.
  • Keep track of your outstanding balance in one place: Managing one repayment is much easier than managing multiple. This is especially true if you rely on your memory to make credit card repayments.
  • Your credit score may rise: An initial consolidation loan application may negatively impact your credit rating. However, over time, the reduction in your credit card balances may positively impact your credit score as being close to credit limits could be viewed as over-indebted by some lenders.


  • Other options may prove more cost-effective: If you have a handful of credit cards with relatively low balances, it may be beneficial to pursue a 0% balance transfer credit card rather than a consolidation loan.
  • You may lose your home: If you chose a secured consolidation loan with a provider like us at Pepper Money and can’t keep up with the repayments your home could be repossessed.
  • You may pay more interest: if you choose to consolidate your borrowing over a more extended period, this extends how long it will take to clear the balance. Whilst, your overall monthly payment could be lower, the total interest accrued may be more.
  • Consolidating could encourage further spending: When you clear credit card balances with a consolidation loan, your credit limit will be available to spend again. So, it’s important to manage this effectively to avoid returning to high balances. As a responsible lender, we recommend that you consider closing those accounts if you feel that this may be a temptation.

Secured consolidation loans

At Pepper Money, we provide secured consolidation loans to our customers, helping them streamline their repayments into one manageable monthly payment.

To be eligible for a secured consolidation loan, you must be a homeowner with an existing mortgage as the borrowing is secured against your property. You can borrow higher amounts with a secured loan up to the maximum equity that you’ve built up in your home. If you would like to find out how much you could borrow visit our homeowner loan calculator.

As mentioned earlier in this article, you may lose your home if you cannot keep up with the repayments, so think carefully before securing further debts against your home.

When taking a consolidation loan, please consider the length of the loan as you may pay more interest over longer periods than your current credit commitments.