How to Get Approved for a Consolidation Loan

Securing Approval for a Consolidation Loan: Your Comprehensive Guide

How to Get Approved for a Consolidation LoanAt some point, we’ve all experienced the burden of juggling multiple credit cards, each with its high-interest rates and minimum payments. This can lead to a consideration of consolidation loans as a possible solution. The allure of a consolidation loan lies in its promise of lower interest rates, reduced payments, and the simplicity of a single payment. This guide aims to shed light on the ins and outs of securing approval for a consolidation loan.

Understanding Debt Consolidation

Before embarking on the journey to secure a consolidation loan, it’s crucial to understand the different types of debt consolidations and the institutions that offer them.

Unsecured Consolidation Loan – Finance Company

Finance companies such as HSBC Finance, CitiFinancial, and Wells Fargo offer debt consolidation loans typically up to $15,000-$20,000, usually spread over 4-6 year terms. The downside, however, is the high-interest rates, ranging from 20%-35%.

Unsecured Consolidation Loan – Bank

Banks, being more affordable, offer consolidation loans either as a personal line of credit or a term loan. Personal lines of credit usually have lower interest rates compared to term loans.

Consolidation Loan – Mortgage

This type of consolidation loan requires ownership of a house and some equity in it. While offering the lowest interest debt consolidation financing, one must be careful about closing costs.

Consumer Proposal

A consumer proposal is different from traditional debt consolidation as you don’t borrow the sum you owe. Instead, a trustee administers a proposal based on your income to your creditors. The catch is that they impact your credit negatively.

Criteria for Loan Approval

When applying for a consolidation loan, banks assess your risk level. They do this by looking at specific criteria, collectively known as the 5 Cs of Credit: Character, Capital, Credit, Collateral, and Capacity.


The bank considers your character by looking at factors such as your residence’s longevity, your employment status, and job type. Typically, banks favour individuals who have lived and worked in the same place for 1-3 years.


Banks prefer to see that you have some personal investments or savings. While not having any savings isn’t a deal-breaker, it does represent a risk to the bank.


Your credit score plays a significant role in your loan approval. A score of 680 or higher increases your chances of obtaining a loan. However, late payments in the past 24 months, credit cards close to their limits, or too many credit applications can still lead to loan denial.


Collateral is anything you own that could be pledged as security on a loan. Although having collateral isn’t a necessity, having it may increase the amount you’re approved for.


Your capacity to make monthly payments is determined by two calculations – TDS (Total debt service ratio) and GDS (Gross debt service ratio). Banks generally want your TDS to be 40% or less and your GDS to be 30% or less.


Before moving forward, it’s important to review each of the 5 Cs of credit and evaluate whether you meet the banks’ requirements for a consolidation loan.

Do you have:

  • Stability, reliability, and responsibility (Character)?
  • Some savings and/or investments (Capital)?
  • A minimum credit score of 680 and a positive payment history (Credit)?
  • Any collateral (Collateral)?
  • Proof of income and suitable TDS and GDS ratios (Capacity)?

What If You Don’t Qualify?

Not qualifying for a debt consolidation loan can feel like hitting a dead-end. However, there are other options to consider, such as speaking to a financial consultant. They can help you explore other financial options or even help you source a creditor that will extend debt consolidation financing when banks won’t.

Choosing a Financial Consultant

If you decide to consult a financial expert, remember to ask plenty of questions:

  • How long have they been in business?
  • How many employees do they have?
  • Do they have an office?
  • Do they only administer one service/program or do they administer many?
  • Do they have an online presence?
  • Do they have recommendations/client testimonials?

By doing so, you can ensure you’re receiving advice from a reliable source.


Understanding the process of how to get approved for a consolidation loan can be overwhelming, but with the right knowledge and guidance, it can be an achievable goal. By following this comprehensive guide, you can navigate the world of consolidation loans with confidence. Remember, every financial situation is unique, and it’s crucial to consider all your options before making a decision.

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