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Updated on Thursday, January 21, 2021
If you have high-interest loans and credit card balances, it might feel like you’re making slow progress toward debt payoff. Debt consolidation loans may help by allowing you to streamline your monthly payments and save money on interest. When you consolidate debt, you’ll take out a personal loan with better terms and use the proceeds to pay off the old debt.
Every lender sets its own minimum credit score for debt consolidation loans, so you’ll need to pick the best one for your financial situation. Below, we detail how debt consolidation works and feature some debt consolidation loan options by credit score to kickstart your search.
- How does a debt consolidation loan work?
- Compare these 7 debt consolidation loans
- How to shop and compare debt consolidation loans
- How to apply for a debt consolidation loan
How does a debt consolidation loan work?
A debt consolidation loan is often just a personal loan. Borrowers typically consolidate debt to lower their monthly payments, save on interest or shift from a variable-rate to a fixed-rate loan.
After applying for a personal loan, being approved and receiving funds, you’ll pay off your existing debts and start making payments on your new loan. Expect to pay interest on your loan, as well as an initial origination fee, which can range from 0-8% of your loan amount and is either deducted from or added on top of your loan balance.
Shopping around can help you find a loan that addresses your needs and keep borrowing costs low. The consolidation loan rates below range from 5.99% to 35.99%. As a general rule of thumb, rates below 36% are generally considered affordable, according to the National Consumer Law Center (NCLC).
Getting a loan to pay off debt won’t help address overspending problems. If you pay off the original debt but continue spending more than you earn — no matter the reason why — you’ll likely find yourself back in the same position.
Compare these 7 debt consolidation loans
Minimum Credit Score
24 to 84
No origination fee
SoFi offers some of the best rates and terms on the market. ... Read More
Fixed rates from 5.99% APR to 20.69% APR (with AutoPay). SoFi rate ranges are current as of January 19, 2021 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. See APR examples and terms. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.
SoFi has an impressively high borrowing limit and low lending costs, but its minimum loan amount as well as Payoff’s are the highest of any lender on this list. Borrowers can take out personal loans between $5,000 and $100,000 with zero fees and APRs that start from a low 5.99%. Repayment terms are flexible, ranging from 24 to 84 months.
SoFi customers can also tap special membership benefits, such as local networking events, discounts and career and financial advice — but its standout benefit is the unemployment program. If you lose your job, SoFi may temporarily suspend your loan payments and help you find new employment. The forbearance comes in three-month increments for a total of 12 months.
This lender is a good option for borrowers with above-average credit, since it has the highest eligibility standards of any others on this list. However, SoFi says it also considers other factors in the application process, such as how much of your income is left over after paying your other expenses. If you don’t quite meet SoFi’s lending requirements, you might have a better chance at qualifying with a co-borrower, which SoFi allows.
Minimum Credit Score
24 and 60
Up to 5.00%
Payoff is a financial services firm that offers personal loans mainly to help consolidate credit card debt.... Read More
All loans are subject to credit review and approval. Your actual rate depends upon credit score, loan amount, loan term, credit usage and history. Currently loans are not offered in: MA, MS, NE, NV, OH, and WV.
Payoff offers personal loans for consumers who want to consolidate credit card debt into one fixed-rate loan. That said, its loans aren’t meant to be used for any other purpose.
If you qualify for a Payoff loan, you may borrow between $5,000 and $40,000 and choose from loan terms of 24 and 60 months. Borrowing costs start low, at 5.99%, and reach a high of 24.99%, which is competitive with the other lenders here. For strong credit borrowers, you could avoid an origination fee; this fee is Up to 5.00% of your loan amount. There are no late fees, prepayment penalties, returned check fees or other types of fees, though.
Minimum Credit Score
36 or 60*
2.41% - 5.00%
Prosper is a peer-to-peer lending platform that offers a quick and convenient way to get personal loans with fixed and low interest rates. ... Read More
*For example, a three-year $10,000 personal loan would have an interest rate of 11.74% and a 5.00% origination fee for an annual percentage rate (APR) of 15.34% APR. You would receive $9,500 and make 36 scheduled monthly payments of $330.90. A five-year $10,000 personal loan would have an interest rate of 11.99% and a 5.00% origination fee with a 14.27% APR. You would receive $9,500 and make 60 scheduled monthly payments of $222.39. Origination fees vary between 2.41%-5%. Personal loan APRs through Prosper range from 7.95% to 35.99%, with the lowest rates for the most creditworthy borrowers. Eligibility for personal loans up to $40,000 depends on the information provided by the applicant in the application form. Eligibility for personal loans is not guaranteed, and requires that a sufficient number of investors commit funds to your account and that you meet credit and other conditions. Refer to Borrower Registration Agreement for details and all terms and conditions. All personal loans made by WebBank, Member FDIC.
Prosper is a peer-to-peer lending platform, which means the company matches you with investors who might fund your loan. Borrowers can take out debt consolidation loans from $2,000 to $40,000and APRs starting at 7.95%, with limited term options of 36 or 60 months.
While it’s common for lenders to offer just two term lengths on debt consolidation loans, it provides less flexibility compared to loans offered by SoFi, LendingPoint and Avant. You won’t be able to get a shorter loan term and pay less interest or a longer term with lower payments. But because Prosper loans don’t come with prepayment penalties, you can pay off the loan earlier if you can afford it and want to save on interest.
Among lending companies on this list, Prosper may be your best option for a debt consolidation loan if you have average credit; peer-to-peer lending adds a more human element to the borrowing process as your application is reviewed by multiple investors who can be more forgiving of less-than-perfect credit. Prosper also allows co-borrowers, so if a trusted friend or relative is willing to apply with you and has stronger credit, this could improve your chances of getting approved or qualifying for a low interest rate.
When comparing your loan options, keep an eye on your borrowing costs. Prosper borrowers are on the hook for late fees, a $15 failed-payment fee and an origination fee ranging from 2.41% - 5.00%.
Minimum Credit Score
36 or 60
2.90% - 8.00%
Upgrade is an online lender that offers fairly priced personal loans for a term of either 36 or 60 months.... Read More
Personal loans made through Upgrade feature APRs of 6.94%-35.97%. All personal loans have a 2.9% to 8% origination fee, which is deducted from the loan proceeds. Lowest rates require Autopay and paying off a portion of existing debt directly. For example, if you receive a $10,000 loan with a 36-month term and a 17.98% APR (which includes a 14.32% yearly interest rate and a 5% one-time origination fee), you would receive $9,500 in your account and would have a required monthly payment of $343.33. Over the life of the loan, your payments would total $12,359.97. The APR on your loan may be higher or lower and your loan offers may not have multiple term lengths available. Actual rate depends on credit score, credit usage history, loan term, and other factors. Late payments or subsequent charges and fees may increase the cost of your fixed rate loan. There is no fee or penalty for repaying a loan early. Accept your loan offer and your funds will be sent to your bank or designated account within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes the transaction. From the time of approval, funds should be available within four (4) business days. Funds sent directly to pay off your creditors may take up to 2 weeks to clear, depending on the creditor. Personal loans issued by Upgrade's lending partners. Information on Upgrade's lending partners can be found at https://www.upgrade.com/lending-partners/.
Upgrade offers debt consolidation loans from $1,000 to $35,000 with limited terms of 36 or 60 months. Among lenders on this list, only Upgrade and Upstart offer loan limits as low as 36 or 60. This offers some flexibility for people who only need to consolidate a small amount of debt, such as a payday loan.
People with fair credit or better can qualify and there are no prepayment penalties, though borrowing costs are higher than what’s offered through Payoff, Prosper and SoFi. Upgrade charges APRs from 6.94% to 35.97%, as well as:
- 2.90% - 8.00% origination fee
- $10 returned payment fee
- $10 late fee
In some cases, you might save on interest if Upgrade offers you a secured personal loan, which uses your car title as collateral. While this can be a convenient way to access cheaper credit, you should weigh the risks involved. The lender can legally take your car if you can’t pay back the loan, and your financial situation could become worse if the car is your main source of transportation.
Minimum Credit Score
36 or 60
Up to 8.00%
Upstart is an online lender created by ex-Googlers.... Read More
Like Prosper, Upstart is an online marketplace that connects borrowers to lenders who are willing to fund debt consolidation loans.
Borrowers who are new to credit or rebuilding credit may qualify for a loan of $1,000 to $50,000. APRs range from a high 8.27% to 35.99%, and there are just two loan terms available: 36 or 60 months.
There are no prepayment penalties, but Upstart does charge a late fee.
Minimum Credit Score
24 to 60**
Up to 4.75%**
Avant is an online lender that offers personal loans ranging from $2,000 to $35,000. ... Read More
*If approved, the actual loan terms that a customer qualifies for may vary based on credit determination, state law, and other factors. Minimum loan amounts vary by state.
**Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33.
Based on the responses from 7,302 customers in a survey of 140,258 newly funded customers, conducted from August 1, 2018 - August 1, 2019, 95.11% of customers stated that they were either extremely satisfied or satisfied with Avant. 4/5 Customers would recommend us. Avant branded credit products are issued by WebBank, member FDIC.
Avant offers debt consolidation loans to people with less-than-stellar credit, with amounts ranging from $2,000 to $35,000 and loan terms from 24 to 60 months.
The lender’s relaxed eligibility requirements translate to higher borrowing costs. There’s an application fee (Up to 4.75%), a $15 returned-payment fee and a late fee of $25 if your payment is 10+ days late. Plus, APRs are on the higher range, 9.95% to 35.99%, making this a poor option for borrowers with excellent credit.
But the lender does offer one standout benefit: Borrowers can secure their loan, which might make it easier to qualify or get a lower interest rate. Avant’s secured loans range from $2,000 to $35,000 with the same APR range as its unsecured product. Terms are shorter, from 24 to 60 months. Like Upgrade’s secured option, you’ll use your car title as collateral.
Minimum Credit Score
24 to 60
0.00% - 6.00%
LendingPoint is an online lender that targets borrowers with fair credit, and allows borrowing up to $25,000.... Read More
It might be difficult to find debt consolidation loans for bad credit, but among lenders on this list, LendingPoint may be your best bet for this type of loan. Although LendingPoint will check your credit score, it also looks at factors beyond this metric, including employment history, income and banking history.
Loan amounts range from $2,000 to $25,000 with loan terms of 24 to 60 months. These loans can help if you want to consolidate a small amount of debt and don’t qualify for credit elsewhere. But if you need to borrow more, Avant has a higher loan limit and similar credit requirements.
These loans may also be more expensive compared to others on this list. LendingPoint’s APRs range from 9.99% to 35.99%, and depending on where you live, you may pay an origination fee ranging from 0.00% - 6.00%. You also won’t be able to apply with another borrower or ask someone to cosign your loan.
How to shop and compare debt consolidation loans
Using a personal loan for debt consolidation may help you save money on interest and motivate you to get out of debt by a certain date. Consider following these tips for best practices:
- Determine your goals. Defining why you’re consolidating debt in the first place can help you pick the best loan for your situation. For example, if compounding interest has become unmanageable, then taking out a loan to pay off credit cards can help you save on interest costs and set a clear payoff date. Or if you need more room in your budget, a loan with a longer term can provide lower payments.
- Do the math. See what a debt consolidation loan will cost you compared to your current debts. A longer-term loan with lower payments may be easier to manage, but you may end up paying more in interest charges by the time your term ends. This debt consolidation calculator can help you run the numbers.
- Consider which types of debt you want to consolidate. Generally speaking, you’ll need to consolidate student loans separately from your other types of debt, such as credit card debt, medical debt and auto loan debt. Consider what you lose by consolidating, too.
- Weigh your options against other types of loans. You have other options for consolidating debt, though you’ll need to weigh the pros and cons. Home equity lines of credit and home equity loans typically offer low interest rates, but they’re risky because you’re using your home as collateral. Using a 0% introductory APR credit card to consolidate debt could also be a good option if you’re sure you’ll pay down the balance before the introductory period ends.
How to apply for a debt consolidation loan
- Determine how much you need to borrow. Make a list of the debts you want to consolidate and add up the total due. You’ll want your debt consolidation loan to cover this amount.
- Check how much you can pay each month. Add up your monthly expenses, such as rent, groceries and utilities, and subtract the expenses from your monthly income. From what’s left over, figure out how much you’re comfortable paying toward your debt each month.
- Compare your loan options. Check multiple debt consolidation companies for a loan that works for you. Some lenders offer a prequalification tool, which helps you see if you qualify and find out your interest rate. The loan should cover the amount you need to pay off, and the APR should ideally be lower than your current terms.
- Apply for the debt consolidation loan. When you’re ready to apply for the loan, gather your documents and fill out the application. Read through the terms and conditions to understand your interest rate, monthly payment, fees and whether the lender reports your payments to the credit bureaus.
- Accept the funds. Some lenders send the money directly to you, while others pay your creditors directly. Once you’re approved and you sign for the loan, either check your bank for the funds or check your credit account for a zero balance. Use the funds to pay off your debts.
- Make payments on your new loan. Follow your plan to pay down the new debt consolidation loan.