You certainly don’t want to be taking on additional debts but do you know about consolidation loans - a neat way of combining existing debts into one loan at lower interest rate? It could see you hundreds of pounds better off each month. This won’t be the right solution for everyone but is ideal if you’re just managing to make minimum repayments but unable to clear debts.
Credit Union Consolidation loans
Consolidation loans are a speciality of the UK’s several hundred credit unions, sometimes knows as Community Banks. As they are not for profit, credit unions can often offer debt consolidation loans at lower interest rates compared to traditional banks or credit card companies. These loans combine multiple high-interest debts, including credit cards, personal loans, buy now, pay later (BNPL) arrangements, and logbook loans, into a single loan with a lower fixed interest rate and monthly payment. By streamlining your payments they are more predictable and manageable.
Boom Community Bank is one of many credit unions nationwide that plays a significant role in meeting the financial needs of people who are being refused credit or are trapped in minimum payment cycles. It offers consolidation loans to existing members and to new applicants. A special feature of a credit union consolidation loan is that you are required to pay a small amount into a savings account alongside your loan repayments. “As they repay the loan members built up a pot which means if they do have a small expense in future it is more manageable, alternatively they can choose to pay off the loan early without penalty. For some it will be the first time they will have built up any form of saving, that transformational element is an important part of our work,” Amanda Jasper from Boom Community Bank explains.
Saving £100s
Boom Community Bank says not enough people realise that consolidation loans are available. One customer was spending so much of his income paying off interest on credit card and payday loans that he resorted to taking family valuables to a pawn shop each week, incurring repeated fees just to cover his fuel bills. Boom was able to remove this commitment, as well as other highest interest loans saving the member hundreds of pounds a month in repayments.
Being not for profit allows credit unions to help a wider range of people and they offer a personal touch. Amanda Jasper says: “ It can take several years to become debt free so we’re looking to go on a journey with our members and look beyond credit scores alone in deciding whether we can help someone.”
Who’s it not right for?
Credit unions will only offer a consolidation loan where it’s the right option for you. If the consolidation itself doesn’t improve your monthly budget, there is repeated evidence or poor financial discipline and spending habits following a discussion the credit union would direct you to other sources of support which include:-
StepChange can help with debt advice, budgeting, and possibly setting up a debt management plan.
Citizens Advice Bureau (CAB) can offer detailed guidance on handling debt, legal rights, and available financial help.
GamCare if gambling is a contributing factor to the financial struggles, offering support and treatment for gambling addiction.
What next?
Amanda Jasper says “Consolidation loans are a real option for someone just about managing to repay interest on multiple loans and we’d like more to be made available to people who need them through credit unions and other financial organisations.” Financial inclusion organisation Fair4All Finance agrees and has just invested in the country’s biggest credit union, My Community Bank, to help them offer consolidation loans to applicants they may have previously declined. If the pilot goes to plan, it will pave the way for a big growth in consolidation loans from a variety of financial organisations.
Credit unions in the UK are regulated by the Financial Conduct Authority (FCA) and are covered by the FSCS for deposit protection. This means that, like banks and building societies, credit union members are protected up to a limit of £85,000 per person
To find out more, visit www.findyourcreditunion.co.uk or www.boomcb.org.uk to find out more about their work in Surrey, West Sussex, Berkshire and North Hampshire.