Consolidating personal loan debt

Can you consolidate more than one personal loan?

Personal loans are fixed-term, usually unsecured borrowing with a set monthly payment. People often take out more than one over the years: perhaps one for a car, another for home improvements, a third to cover an unexpected cost. If you are juggling two or three separate loan payments, you may be able to replace them with a single new loan that clears the others, leaving one payment and one end date.

Credit cards and personal loans are different animals, so the appeal of consolidating is different too. A loan already has a defined structure, so this is less about turning open-ended debt into something finite and more about simplifying several fixed payments into one. In some cases it can also secure a lower rate or a payment that fits your budget better. Whether it actually saves money comes down to the detail, and that is where an early-settlement figure matters.

What is an early-settlement figure?

When you want to clear a personal loan ahead of schedule, you ask the lender for an early-settlement figure: the exact amount required to close the account today. For regulated loans, this is usually the outstanding balance with a rebate of some future interest, and lenders are generally permitted to add a limited early-settlement charge, commonly up to a short period of additional interest. The figure is only valid for a short time, so request it close to when you plan to act.

Getting a settlement figure for each loan you want to consolidate is essential, because it tells you the true cost of clearing them. Add those figures together and you have the amount your new consolidation loan would need to cover. Comparing that total against a new loan's total repayable is the only reliable way to see whether consolidating will cost you more or less than carrying on as you are.

Does settling a personal loan early save you interest?

Sometimes, though not always as much as people expect. Many personal loans are structured so that more of the interest is effectively earned in the earlier part of the term. If you settle early you should receive a rebate of some future interest, so settling can save money compared with running the loan to its end. Any early-settlement charge eats into that saving, and if you replace the loan with a new one over a longer term, a lower monthly payment can hide a higher total cost.

The honest answer is that it depends on the numbers in front of you. The useful comparison is the total you would repay by keeping your current loans running against the total on a new consolidation loan after settling them. The guide to debt consolidation interest rates explains what drives the cost, and reading how to compare debt consolidation loans helps you compare like with like.

How to work out whether consolidating is cheaper

The maths is less daunting than it sounds if you take it in order. The aim is to compare two totals, not two monthly payments.

The loan repayment calculator lets you model the new loan at different rates and terms so you can see how the total shifts. Keeping the term similar to your current loans is the quickest way to avoid trading a lower payment for years of extra interest.

When does consolidating personal loans make sense?

Combining personal loans tends to be worthwhile in a few situations:

• The new loan's rate is genuinely lower than the weighted rate across your current loans, and the saving survives any settlement charges.
• You want one predictable payment and a single end date instead of several.
• Your current payments are affordable but awkward to track, and simplifying them cuts the risk of a missed payment.
• You can keep the term similar, so you are not swapping a lower monthly payment for years of extra interest.

A personal loan used for consolidation is the usual vehicle here, and the broader page on consolidating multiple debts covers combining loans alongside other borrowing.

When combining loans may not be worth it

If your loans are near their end, most of the interest may already have been paid, so settling them to start a fresh loan can cost more than simply letting them finish. Running the figures first, rather than assuming consolidation is always cheaper, is the step that protects you.

What to check before you apply

Request a current settlement figure for every loan, confirm whether any early-settlement charge applies, and total the real cost of clearing them. Then compare that against a specific new-loan quote, looking at the total amount repayable rather than the monthly figure alone. Bear in mind that the advertised rate is representative, and the rate you are offered depends on your circumstances. The wider guide to debt consolidation loans explains how to read a quote properly. If payments are already a struggle, free help is available before you take on new borrowing.

Frequently asked questions