Debt Consolidation Loan Rates – What to Expect

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A debt consolidation loan streamlines existing debts into one new loan. Most unsecured consumer debt can be consolidated, including credit cards, medical bills, utility bills, payday loans, student loans, taxes and bills sent to a collection agency. Having one monthly payment instead of several can make it easier to get your finances in order and could allow you to save money on interest fees. When shopping around, it’s essential to find a loan with a lower interest rate and better terms than the original debts.

Average debt consolidation interest rates by credit score

Credit rangeAverage interest rate

Excellent (700 & above)

10.84%

Good (640 - 699)

28.04%

Average (600 - 639)

38.83%

Poor (600 & Below)

40% and above
* These rates are based on LendingTree’s personal loans data ranging from $10,000 to $10,999 for March 2018 – August 2018

How are debt consolidation loan interest rates determined?

Paying down debt is hard work, but it’s even more challenging when you’re working against sky-high interest rates. Your credit score isn’t the only factor that plays into loan pricing, but it’s a big one. Generally speaking, the higher your credit score, the lower your interest rate.

On its website, credit bureau TransUnion explains that your credit score offers financial institutions a quick snapshot of your credit health. The manner in which scores are used is entirely up to the individual lender.

If your credit score isn’t great, don’t panic. Several other elements are also taken into consideration as part of the loan underwriting process, including:

Debt-to-income ratio

A key indicator of your financial fitness, your debt-to-income ratio allows financial institutions to weigh your current debt against your income. This helps lenders determine your ability to keep up with new loan payments. Your debt-to-income ratio is calculated by dividing the total sum of all your monthly obligations by your gross monthly income. According to guidelines set by Wells Fargo, a good debt-to-income ratio is 35% or less, a decent one falls into the 36% to 49% range and one that needs improvement is 50% or higher.

Alternative credit history

Your bill-paying habits can help or hinder your ability to get a good interest rate. It’s not uncommon for lenders to review your track record of paying noncredit accounts, such as rent, utilities and phone bill. Lenders, credit bureaus and credit scoring firms generally believe that the past is the greatest indicator of future behavior, so this data can provide telling insights.

Employment history

Loan repayment is expected to be funded by your income, so lenders want to verify your ability to hold a job. Some will dig deeper into your employment history than others. In many cases, a steady employment history will be enough, but some financial institutions prefer applicants who have worked for the same company for several years or at least have a long track record in their current industry.

How to get the lowest interest rate on a debt consolidation loan

Not all debt consolidation loans offer equal value, so it’s important to do your homework. All else equal, the lower the interest rate on your debt consolidation loan, the lower your monthly payment. You want to achieve financial freedom as quickly as possible, and much of that weighs on finding the most competitive interest rate.

Shopping around to compare multiple loan rates is a step you can’t afford to pass up, even if you have excellent credit. Each lender has its own criteria and pricing model, which can lead to major rate discrepancies. Limit your comparison shopping to lenders that perform a soft credit pull, so it doesn’t lower your credit score.

LendingTree, the parent company of MagnifyMoney, allows you to compare up to five lenders without affecting your credit score. Find the best debt consolidation loan for you today!

LendingTree
APR

As low as 3.99%

Credit Req.

Minimum 500 FICO®

Terms

24 to 60

months

Origination Fee

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company

Advertiser Disclosure

LendingTree is our parent company. LendingTree is unique in that you may be able to compare up to five personal loan offers within minutes. Everything is done online and you may be pre-qualified by lenders without impacting your credit score. LendingTree is not a lender.


A Personal Loan can offer funds relatively quickly once you qualify you could have your funds within a few days to a week. A loan can be fixed for a term and rate or variable with fluctuating amount due and rate assessed, be sure to speak with your loan officer about the actual term and rate you may qualify for based on your credit history and ability to repay the loan. A personal loan can assist in paying off high-interest rate balances with one fixed term payment, so it is important that you try to obtain a fixed term and rate if your goal is to reduce your debt. Some lenders may require that you have an account with them already and for a prescribed period of time in order to qualify for better rates on their personal loan products. Lenders may charge an origination fee generally around 1% of the amount sought. Be sure to ask about all fees, costs and terms associated with each loan product. Loan amounts of $1,000 up to $50,000 are available through participating lenders; however, your state, credit history, credit score, personal financial situation, and lender underwriting criteria can impact the amount, fees, terms and rates offered. Ask your loan officer for details.

As of 17-May-19, LendingTree Personal Loan consumers were seeing match rates as low as 3.99% (3.99% APR) on a $10,000 loan amount for a term of three (3) years. Rates and APRs were based on a self-identified credit score of 700 or higher, zero down payment, origination fees of $0 to $100 (depending on loan amount and term selected).

A low credit score won’t necessarily prevent you from getting a debt consolidation loan, but it could impact your ability to get a competitive rate. Most people have credit scores in the range of 600 to 750, according to Experian. For scores that fall within the 300 to 850 range, the consumer credit reporting agency cites a score of 700 or higher as good and 800 or higher as excellent.

The best way to get the lowest interest rate on a debt consolidation loan is to improve your credit score!

If your current credit score isn’t great, take measures to improve it. Payment history and credit utilization can make up to 70% of a credit score, according to Experian, so simply paying your bills on time and keeping your balances low can be a tremendous help. You can also help your score by only applying for new credit only when absolutely necessary and getting a head start at paying your loans off now, if possible.

Comparing more than just rates

Interest rates play a huge role in the total price of your debt consolidation loan, but they aren’t the only factor worth comparing. Taking out a new loan is a very big deal, so conduct plenty of research to make sure you’re entering into an agreement that sets you up for success.

Fees

Many lenders tack on additional costs that can cause you to end up paying more than you were before consolidating your payments. Read the fine print to see how much, if anything, you’ll be charged for late fees, origination fees (a fee charged for processing your loan) and prepayment penalties (an added cost for paying your loan off early).

User experience

Taking out a loan should be a relatively seamless process. There are a lot of lenders to choose from, so conducting research to see which financial institutions provide the best — and worst — user experience can save you a lot of headaches. Browse each bank’s website to review customer service contact options, read reviews and search social media to see what people are saying about your top choices.

Transparency

When your financial health is at stake, you need a lender you can trust. Unfortunately, some financial institutions make it difficult to find all the information you need to make an educated decision. This can cause you to inadvertently sign up for a misleading loan that doesn’t serve your best interests. If you can’t easily find the answers to any questions you may have about a debt consolidation loan, you may want to consider another lender.

Alternative options

A debt consolidation loan can be an effective way to get your finances in order, but it’s not the only option. Before applying for a loan, take a look at other alternatives to get a well-rounded look at every available route.

If the amount of debt you’re trying to pay off is relatively small and you have a great credit score, a balance transfer credit card might be a better choice. Many balance transfer credit cards offer a 0% APR for an introductory period of time, which could allow you to pay off your debt without accruing any additional interest. This can help you save a great deal of money, but there are a few things you should know first.

In most cases, the 0% APR interest rate is a limited-time promotion, according to the Consumer Financial Protection Bureau. If the rate rises, your monthly payment could also increase. The CFPB also notes that the company can raise your rate if you’re more than 60 days late on a payment. Additionally, you may have to pay a balance transfer fee, and if you also use the card to make purchases, the new charges may be subject to interest unless there’s also an introductory 0% APR for purchases.

If you own a home, you might also consider a home equity loan or a home equity line of credit, which will provide you with extra cash. Home equity loans come at a fixed rate, while home equity lines of credit have variable interest rates and follow a flexible repayment structure. Borrowing criteria vary by lender, but the amount of equity you have in your home will at least partially factor into the size of the loan you’re able to take out. More equity tends to equate to better terms.

The best rates are typically given to homeowners with a mortgage that totals less than 85% of the home’s value and a debt-to-income ratio of 45% or less. This can be a great way to consolidate debt, but do remember you can lose your home if you don’t keep up with payments.

Taking out a home equity loan could also require you to pay closing costs that can add up to hundreds or thousands of dollars, according to the CFPB. If the property declines in value, you could also run the risk of falling underwater on it. With that said, a home equity loan or a home equity line of credit could serve as an optimal way to pay off debt. As with any major financial decision, being well-informed will help you make the best choice for your unique situation.

Where to find the best debt consolidation loans

Shopping around and comparing personal loans for debt consolidation is essential, but you might not know where to start. Visiting the website of every lender that offers debt consolidation loans isn’t feasible, but LendingTree, the parent company of MagnifyMoney, has a one-stop tool that can recommend several debt consolidation loan offers.

Simply complete one online form, and LendingTree will run a soft credit pull that could match you with multiple loan offers. This is a convenient way to connect with multiple lenders in a matter of minutes. Participating lenders have a range of acceptance criteria, so you could find an attractive rate even if your credit score isn’t the best.


Compare debt consolidation loans and save money with the best rates you can find

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Laura Woods
Laura Woods |

Laura Woods is a writer at MagnifyMoney. You can email Laura here

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