Debt consolidation can sound like the sensible option when your finances are stretched.
One loan. One monthly payment. Everything tidied up neatly in one place.
That is often how these loans are marketed, and in some situations debt consolidation can genuinely help. But it can also be risky, especially where the new loan is expensive, runs for several years, and is being offered to someone who already has signs of financial difficulty.
This is something I have looked at closely after raising a complaint about a Lendable loan.
The loan was for £9,000 over 60 months at an APR of 48.37%. The repayments were around £350 per month and the purpose of the loan was debt consolidation.
On paper, that might sound like a practical way of dealing with existing debts. But my concern was that the wider picture at the time should have raised questions about whether taking on another high-cost, long-term loan was really sustainable.
The Problem With Looking at Affordability Too Narrowly
When lenders assess whether someone can afford credit, it should not just be about whether there appears to be enough money left over on a calculation.
A disposable income figure can look fine on paper, but it does not always tell the full story.
In my case, there were several warning signs. These included a default recorded around 13 months before the loan was approved, a large number of active credit accounts, significant unsecured debt, previous DMP or arrangement markers, and recent arrangement-to-pay history.
Individually, one of those things might not automatically mean a lender should decline an application.
But taken together, they can show a pattern of recent financial pressure.
That is the bit I think often gets missed.
A borrower can be “up to date” at the time of an application and still be under pressure. They might be juggling multiple accounts, making reduced payments, relying on consolidation, or only just keeping things together.
Being up to date does not always mean everything is stable.
Why Arrangement-to-Pay Markers Matter
One of the key issues in my case was the treatment of arrangement-to-pay history.
An arrangement-to-pay is not the same as a normal account running smoothly. It usually means the borrower has not been able to keep up with the original contractual payments and has needed some kind of alternative arrangement.
Even if that arrangement is being maintained, or has later been settled, it can still be a sign that the person has recently had financial difficulty.
That should matter when a lender is deciding whether to offer more borrowing.
This becomes even more important where the new credit is not small or short term. A £9,000 loan over five years at a high APR is a serious commitment. It is not the same as a small short-term facility or a modest credit limit increase.
Internal Knowledge Should Matter Too
Another part of this that I think is important is internal knowledge.
Some of the negative information was not simply sitting with a credit reference agency. Lendable, through its own credit card relationship with me, had knowledge of some of the warning signs.
That makes the situation different.
This was not just a case of a lender having to interpret third-party credit file data. Some of the relevant information was already known, or should reasonably have been known, within the same lending group.
If a lender already knows that a customer has had recent payment difficulty, arrangements, or adverse account conduct, that should carry weight when deciding whether further lending is appropriate.
It should not simply be brushed aside because the account looks up to date on the day of application.
Debt Consolidation Is Not Automatically Responsible Lending
The phrase “debt consolidation” can make borrowing sound safer than it really is.
But consolidation only helps if it genuinely improves the borrower’s position.
If the new loan reduces interest, lowers monthly payments to a sustainable level, and helps the borrower clear debt without taking on more, then it can be useful.
But if it simply turns existing borrowing into a new high-cost loan over a longer period, the borrower may end up stuck with expensive repayments for years.
That is why lenders should be careful.
The purpose of the loan should not be used as a reason to assume the lending is automatically sensible. In some cases, the fact that someone is consolidating debt may itself be a sign that they are already struggling.
Why This Matters to Other Borrowers
This is not just about one loan or one complaint.
It raises a wider point about how affordability is assessed.
A lender may verify income. It may check a credit file. It may calculate a monthly surplus. But those things do not always prove that borrowing is sustainable.
The bigger question should be whether the borrower can make the repayments over the full term without difficulty, without needing further credit, and without worsening their overall financial position.
That is especially important with high-cost lending.
A five-year loan at a high APR can follow someone around for a long time. If the warning signs are already there at the start, they should be properly considered before the money is lent.
What I’ve Learned
The main lesson for me is that debt consolidation needs to be treated with caution.
Before taking out a consolidation loan, it is worth asking:
- Will this actually reduce the total cost of my debt?
- Am I lowering my repayments by extending the debt over a longer period?
- Can I afford this without using more credit?
- Am I already showing signs of financial pressure?
- Would free debt advice be a better option?
It is also worth checking your credit file carefully. Defaults, arrangements, DMP markers and payment history can all matter. They can also become important evidence if you later believe a lender should not have approved borrowing.
Final Thoughts
Debt consolidation can be helpful in the right circumstances, but it is not a magic reset button.
Where someone has recent adverse credit, arrangement history, multiple active accounts and significant unsecured debt, lenders should look carefully at the full picture before approving more borrowing.
In my case, I believe the combination of those factors should have led to more detailed checks before a high-cost five-year loan was agreed.
No single warning sign tells the whole story.
But when several warning signs appear together, they should not be ignored.
