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Can I Consolidate a Loan with Less than 12 Months Left to Repay?

Struggling to repay a loan with less than 12 months left? Whether short-term or long-term, we may be able to provide a debt consolidation loan to reduce monthly payments.

As you enter the final year of repaying a loan, consolidation could help you simplify your finances and make headway with your other debts. It might be especially appealing if you’re currently struggling to meet your monthly repayment obligations. But does consolidating 12 month loans make practical sense, when you’re so close to the finish line?

On one hand, refinancing with longer repayment terms may carry risk this close to payoff. But in some cases, it may help you pay off your other debts sooner and could even save you money. It’s always worth seeking advice from a debt consolidation expert to determine if consolidating loans for 12 months aligns with your financial goals.

Key Takeaways:

  • Consolidating your debts less than 12 months before a loan payoff could be beneficial if you’re at risk of missing payments, or if you could get a better rate on a new loan.
  • It restarts the repayment countdown clock, but may help improve your monthly cash flow or save on interest costs.
  • However, there may be early repayment charges, so factor these in when deciding whether to consolidate.
  • Good credit should help you qualify for the most competitive consolidation loan rates, though there are options for people with poor credit scores.
  • Alternatives like 0% balance transfers may be more suitable for some people. Alternatively, you could consider consolidating all of your other debts and paying off your 12 month loan as planned.
  • Carefully crunch the numbers and seek debt advice to ensure consolidation is the best option for you.

How Does Debt Consolidation Work?

Debt consolidation means combining multiple outstanding debts, such as personal loans and credit cards, into one new loan. As a result, multiple separate bills are combined into one simpler consolidated monthly payment, making it easier to manage your finances. Ideally, you’ll be able to refinance at a lower interest rate than some or all of your existing debts.

Depending on your financial goals, you could use a consolidation loan to:

  • Shorten the overall debt repayment timeline, allowing you to save on total interest costs and become debt-free sooner.
  • Extend the repayment term so that you pay less each month. This can help to relieve stress and improve your cash flow, but may mean you pay more in interest over time.

Consolidation isn’t the right choice for everyone, so it’s important to consider your financial situation carefully.

For example, to be eligible for the best consolidation loan rates, you’ll typically need a good credit rating. But if you don’t, you still have options – some lenders specialise in offering consolidation loans to those with poor credit history. (Like the ones on our lending panel!)

What Are the Benefits of Consolidating with Less than 12 Months Left on a Loan?

It is certainly possible to consolidate a loan with less than 12 months left to repay. However, whether or not it’s a good idea depends on several factors. Here are some of the potential advantages of consolidating close to the finish line of a loan:

01. Simplified Finances

A single predictable loan payment each month is typically easier to manage than having to juggle multiple separate bills and payment due dates. By consolidating, you’ll have fewer payments to track, which can reduce the risk of missed payments.

02. Gain Cash Flow Relief

If you’re struggling to keep up with your financial obligations and are at risk of defaulting on your loan or other debts, consolidating them into a new loan may help. By consolidating and possibly extending the loan term, you might be able to secure lower monthly payments, freeing up cash flow for other immediate needs.

Consolidation might also offer more flexible repayment options, such as the ability to adjust the payment date to better align with your income schedule.

03. Access a Lower Interest Rate

If the loan being consolidated currently carries a high interest rate, refinancing through a new consolidation loan with a lower rate could save substantially on interest over time, even if there’s less than 12 months left. This is especially likely if your credit score has significantly improved since you took out the original loan.

04. Potential for Shorter Total Debt Repayment

If high interest rate loans and other debts are consolidated strategically in the final year of the original loan, this reshuffling of obligations could enable you to repay all of your debts faster. This could be enormously beneficial if your goal is to become debt-free as soon as possible.

05. Psychological Benefit

For some, paying off a loan, even through consolidation, can provide a psychological boost and a sense of accomplishment. This feeling of relief can reduce financial stress and anxiety, leading to improved mental well-being.

Additionally, achieving such a milestone could boost your confidence in managing your finances, encouraging better financial habits and decisions in the future.

Of course, the applicability of these potential benefits depends heavily on your unique situation and financial goals. Consult with an expert for advice if you’re unsure.

What Are the Risks of Consolidating Close to Loan Payoff?

Despite the potential benefits, consolidating with less than a year left on an existing loan is not always the best financial decision. Here are some of the downsides and risks that you should consider:

01. Early Repayment Penalties or Fees

Some types of loans, such as mortgages and car finance, may carry early repayment charges. This means you must pay a penalty if you wish to pay it off sooner than the original term. In addition, some consolidation loans might come with setup fees. With less than 12 months left on your loan, these costs could offset any potential savings from consolidation.

02. Restarting the Loan Repayment Countdown

By consolidating, the borrower restarts their debt freedom countdown clock mere months away from paying off the original loan. Seeing a loan with only a few months left to repay can be motivating. By consolidating, you might lose that “finish line” feeling, potentially reducing the urgency to pay off the debt.

03. Potential for Higher Total Interest Costs

If the new debt consolidation loan carries a higher interest rate, or lengthens the overall debt repayment term significantly, you might end up paying more in total interest over the life of the loan. If your goal is to save money overall, you may wish to avoid this.

04. Risk of Falling Behind on Payments

Depending on the terms of the consolidation loan, you might end up with higher monthly payments, especially if you don’t extend the loan term. This could increase your risk of missing payments on the new loan, potentially damaging your credit score or leading to other consequences.

Always very carefully weigh if consolidating credit card, loan, or other debts in the final 12 months makes financial and logistical sense for you. Crunch the numbers thoroughly to assess projected costs.

What Are the Alternatives to Consolidating with Less than a Year Left?

If you’re considering consolidating a loan with less than a year left, it’s worth exploring some alternatives before making a decision.

01. Overpaying the Loan

If you have extra funds available, consider making overpayments on your loan, i.e. by paying more than what you’re contractually obliged to pay each month. This can help you clear the debt faster and save on interest.

There may be overpayment fees, so compare these with the early repayment charge that may apply if you consolidate to find out which makes more financial sense.

02. Balance Transfer Credit Card

If you also have credit card debts, consider transferring the balances to a 0% interest credit card. This can give you a break from interest, preventing your credit card debts from snowballing while you focus on paying off your loan. However, be mindful of balance transfer fees, and bear in mind that the interest rate may skyrocket after the promotional period ends.

03. Debt Management Plan

If you’re struggling to meet your monthly debt repayment obligations but you don’t want to take out a new loan, you could consider a debt management plan. This is an arrangement made with your creditors to repay your debts over an extended period, often with reduced interest rates. You make one monthly payment to a debt management company, who then divides it between your creditors.

Debt management plans may come with fees, and you may end up paying more in interest over time. Also, they are not legally binding, so your creditors are not obliged to agree with the terms.

04. Only Consolidating Other Debts

If you like the idea of debt consolidation, but you’re only months away from repaying a loan, you could consider consolidating all of your debts except the loan in question. This might be a good option if you have three or more outstanding debts, as it would still simplify your monthly repayments down to two.

Then, you’d benefit from paying off your existing loan in under 12 months as planned, while still combining your other debts and potentially saving on interest.

What Should I Consider Before Consolidating 12 Month Loans?

Before deciding to consolidate your debts when less than 12 months from finishing a loan repayment, you should take time to ensure it’s the right choice for you. Key questions to ask yourself include:

  • What are my long-term financial goals, and could consolidating my debts help me achieve them?
  • Does it make more sense to consolidate all of my debts, or only some of them?
  • Would I be able to secure a lower interest rate by consolidating? Would I pay more or less interest in total over the life of the loan?
  • What prepayment, loan origination, or balance transfer fees apply that could undermine possible savings?
  • Would consolidation significantly improve my monthly cash flow or simplify my finances?
  • Would it be better to finish repaying the current loan as scheduled, or would consolidating multiple debts allow me to become debt-free sooner?
  • Am I certain I will be able to afford the monthly repayments? What are the potential consequences if I miss a payment?

Take time to thoroughly crunch the numbers for your specific financial scenario, bearing in mind how it may change in the future.

How Do I Choose the Right Consolidation Loan?

Choosing the right consolidation loan is vital, especially with less than 12 months left on an existing loan. Here are some tips:

  • Compare Lenders: Research potential lenders to ensure they have a good reputation. Read reviews, check for any complaints, and consider recommendations from trusted sources.
  • Compare Loan Types and Interest Rates: Look for a consolidation loan with a lower interest rate than your current debts. Secured consolidation loans may offer better rates than unsecured loans, but you risk losing a valuable asset if you default.
  • Check for Fees: Some consolidation loans come with origination fees, early repayment charges, or other associated costs. Ensure that these fees don't negate the benefits of consolidating.
  • Consider the Loan Term: While extending the loan term can reduce monthly payments, it might result in paying more interest over the life of the loan. Choose a term that aligns with your monthly budget and your financial goals.
  • Read the Fine Print: Thoroughly review the loan agreement, paying attention to any clauses, penalties, or terms that might be unfavourable. Understand your obligations and what may happen if you can’t pay.

Each loan application will result in a hard inquiry on your credit report, which could temporarily lower your score. To reduce your chances of being rejected, it’s wise to check the eligibility criteria first.

Some sites, like Consolidation Expert, offer free eligibility checks that involve a ‘soft’ credit search. This allows you to compare your options and ensure you’ll qualify for the loan in question before you apply.

Apply With Consolidation Expert Today

Consolidating your debts, even when under 12 months remain on a loan, may have several benefits. It could help you to pay off other high interest debts under the umbrella of one structured, affordable monthly payment. However, there are potential risks and downsides, too – so always seek professional advice before making a decision.

At Consolidation Expert, we can help determine if consolidating within the final year of your loan term makes sense for you. Whether you need a consolidation loan of £5,000 or £75,000.

Apply online today to check your eligibility with our specialist lenders.

Representative 14.8% APR

We are a broker, not a lender.

Representative Example: Borrowing £15,000 over 60 months, repaying £355.28 per month, total repayable £21,316.57.

Total cost of credit £6,316.57.

Interest rate 14.8% (variable).

The lenders on our panel offer loans for 12-360 months, with rates from 4.7% APR to 42.6% APR.

The Representative Example is based on all loans paid out by lenders between 1st Jan 2022 and 31st Dec 2022.

Further reading

Read Is it Possible to Consolidate Short-Term Same Day Loans?
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Read Can I Consolidate Holiday Loans with Other Debts?
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Read How Can I Pay Off My Debts Faster?
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