If you have a lot of debt or different types of debt, then a debt consolidation loan may seem like a good idea. However, if your credit is low, you may not have a lot of options.
The good news is that you can still get a debt consolidation loan even with bad credit. In this article, you will learn about the ins and outs of a debt consolidation loan, the pros and cons of getting one, and what your alternatives are if you are not ready to get a debt consolidation loan. .
What is a debt consolidation loan?
A debt consolidation loan is a new loan that you take out to cover the balance of your other loans. A debt consolidation loan is a single, larger debt that usually has better repayment terms than your original smaller debt. When you receive a consolidation loan, your other loan balances are paid off. This allows you to make one monthly payment rather than several.
For example, if you had one student loan for each semester of your four-year college degree, you would have taken out eight loans. This can be tedious to manage, so you can take out a debt consolidation loan to pay off all of your eight loans and make just one monthly payment instead.
Get a debt consolidation loan with poor or average credit
If your credit is poor or average, it may be difficult for you to get approval for a consolidation loan or to get a loan on favorable terms. A bad or average credit score is usually less than 670. You will need to take steps to get a bad credit debt consolidation loan.
Step 1: Understand Your Credit Score
Understanding your financial situation is the first step in obtaining a personal loan or a consolidation loan. Your credit score is one of the main factors a lender will assess when deciding whether to grant you a debt consolidation loan. Therefore, take the time to research your credit score and the events that caused your score. Sometimes years of bad habits contribute to a low score.
Continue to monitor your score over time. You can learn what contributes to a good score as well as what lowers your score, and act on it.
Step 2: Shop around for a debt consolidation loan
If you have a bad credit rating, you might be inclined to take out the first loan that is offered to you. However, you may have several options that lenders can work with, so be sure to shop around for a good interest rate and a good term. You may want to investigate online lenders as well as physical lenders such as your local credit union.
Make sure you carefully consider all of the fees associated with taking out a personal loan. This may include an origination fee or a prepayment penalty on your loan. Understanding your fees can save you hundreds of dollars over the life of your loan.
Step 3: Consider a secured loan
Most of the personal loans used for debt consolidation are unsecured loans. This means that they do not require collateral. However, if you are having trouble getting approval for a loan, you may want to consider a secured loan.
The forms of security include a vehicle, house or other property. The collateral should be worth the loan amount if you are in default. Even though you can qualify for an unsecured loan, you can compare the interest rates of a secured loan to see if you can get a better rate.
Step 4: Improve Your Credit Score
Finally, if you can’t get a loan right away, you may want to take the time to assess your credit score and see where your areas of opportunity lie. If you have small issues with your score that caused it to drop significantly, then you might be able to increase your score quickly.
For example, a missed payment or a forgotten invoice can drop your score. If so, you may be able to pay that small bill and quickly increase your credit score.
How To Qualify For A Debt Consolidation Loan
To get a debt consolidation loan, you must be 18 years of age or older and be a legal resident of the United States. You must also have a bank account and not be in bankruptcy or foreclosure. These are the basics of qualifying for a debt consolidation loan.
In addition to these basics, you will want to try to improve your financial situation as much as possible. Borrowers with good or excellent credit and a low debt-to-income ratio usually have no problem obtaining a debt consolidation loan. However, if you have bad credit, you’ll want to work on improving your credit score and lowering your debt-to-income ratio.
If you have bad credit and are considering a debt consolidation loan, you may already be in a financial rut. This can make it difficult to improve your financial situation. If this is the case, you can look for lenders who specialize in helping people with poor or average credit and be sure to research the best rates and terms you can get.
Personal loans for debt consolidation
If you have poor credit and are in need of a personal loan, you may want to consult these providers. They will offer high interest loans to people with poor credit.
Fiona is an online marketplace that connects potential borrowers with multiple lenders. Borrowers simply fill out a quick application, and they’re matched with the lenders most likely to approve them. This saves time and money because you can be matched with a lender without needing to visit a bunch of sites.
Fiona is ideal for borrowers with a credit score of 580 or higher who don’t want to waste time filling out a bunch of applications. One cool feature of Fiona is that their initial application only requires a smooth credit check, so applying quickly won’t hurt your credit score.
Since Fiona is a marketplace and not a direct lender, the terms of the offers and the number of offers borrowers receive may vary. Some borrowers report being bombarded with offers, which we believe is potentially a benefit as there are multiple offers that get you the best deal.
Lending Point will typically lend up to $ 25,000 with an interest rate of 15.89% to 35.99% APR and a term of 36 months. You can check your rate for free on their website. If you qualify, you can receive your personal loan in less than 24 hours. LendingPoint takes your credit score, work history, and income into account when you apply for a loan.
SoFi will lend up to $ 100,000 with an interest rate of up to 17% over 24 months. There are no origination fees, prepayment penalties and no overdraft fees. You can apply online for free and will usually receive your funds within a few days.
Upstart will lend up to $ 50,000 with an interest rate of 7% to 35.99% over a term of 36 or 60 months. Funds are provided the day after approval, but they have a steep origination fee of 8%.
OneMain will lend up to $ 20,000 with an interest rate between 18% and 35.99% over a period of 24 to 60 months. They have small setup fees and late payment fees, but they usually go up to $ 30 per payment. You can apply for a loan online and have it funded the day after your application. The company also has nearly 1,500 branches across the country for those who prefer to apply for a loan in person.
Should I Get a Debt Consolidation Loan?
If you are in a hurry and need to consolidate your loans to make them more manageable, your best option may be to get a personal loan or a debt consolidation loan.
A debt consolidation loan has many advantages. Some of them are:
- Simplified financing. When you consolidate your debt, you will pay off multiple debts and only have one loan. This means that you will be making one monthly payment instead of several to follow.
- Lower interest rates. If you have a bunch of credit cards or other high interest debt, the interest rates can vary and be high. Personal loans generally have lower interest rates depending on your credit score, the loan amount, and the length of the term.
- Fixed repayment schedule. Instead of having multiple payments each month that vary in amount, interest rate and duration, you will have a fixed schedule each month.
- Boost your credit. By eliminating the risk of forgetting to make payments or letting your loans slip away, paying a fixed amount on a consolidated loan can help boost your credit score.
Debt consolidation is not for everyone. Also make sure you understand the risks you are taking. Some of the things to watch out for include:
- The initial costs. Some personal loans have upfront fees, including origination fees, closing costs, or annual fees. If you pay a lot of fees over time, consolidating your loans might not be beneficial.
- Higher interest rates. If you have bad credit, you won’t get a great interest rate on your consolidated loan. Therefore, you may have a higher interest rate on your consolidated loan than on your existing loans. If so, it probably won’t make sense to consolidate.
The bottom line
Having bad credit doesn’t mean you can’t get a debt consolidation loan. However, it may be more difficult for you to get a loan right away or get one at a great rate. If you do decide to apply for a debt consolidation loan, be sure to research the best rates and do your best to improve your credit.