I think your idea of consolidating the two instances into one single is sound.
There can of course be valid reasons to have multiple instances. One reason is that you to isolate logins from different customers/organisations from each other. But that sounds far-fetched with two instances and 3500 databases on each.
Another possibility is that there are different server collations or some other configuration, and this is something you should investigate before you go ahead. (But that configuration difference may be accidental, so you may go ahead anyway.)
There could also be a different set of jobs, but having jobs for this many databases sounds like a nightmare.
From a performance perspective, it may not matter that you are consolidating the instances, but it's unlikely to be detrimental. And management should be easier.
And, yeah, moving to compat level 150 is appealing. You could start with a few selected databases.