Best debt consolidation loans for fall 2021
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Debt consolidation loans allow you to combine multiple balances into one simple payment, often with a lower interest rate. (iStock)
If you have a pile of credit cards or a stack of bills youâre struggling to keep track of, you might consider a debt consolidation loan.Â
Personal loans for debt consolidation allow you to pay off existing, higher-interest debts and replace them with a single loan with a lower, fixed monthly payment. However, like any credit product, debt consolidation loans have their advantages and disadvantages. This article covers both.Â
Whatâs a debt consolidation loan and how does it work?
A personal loan for debt consolidation is a new loan you take out to pay off your existing debt. Effectively, youâre refinancing your old debt with the new loan.Â
A debt consolidation loan typically has a lower interest rate than credit cards, so your new loan may have a lower monthly payment than your current debt. That means you may pay down your debt faster with the debt consolidation loan. You also have just one monthly payment to keep track of, rather than the varying due dates and amounts of your current debt.Â
However, your credit score will influence the interest rate youâre able to get on a debt consolidation loan. A better credit score typically means you can qualify for a better rate, and the inverse is also true. Youâll want to make sure the debt consolidation loan you take out will have a lower rate than youâre currently paying on your debt.
And, if you take out a debt consolidation loan to pay off high-interest credit cards, itâs important to avoid taking on new credit card debt once the initial balance is paid off.
Credible makes it easy to compare rates for debt consolidation personal loans from multiple lenders.
Best debt consolidation loans for fall 2021
As you shop for a personal loan for debt consolidation, you may consider a few of the following lenders. These lenders are Credible partners.Â
Avant
Avant may give you a personal loan even if your credit score is less than great, but be aware the lender charges some fees, including origination fees.
- Minimum credit score: 550
- Loan terms: $2,000 to $35,000
- Fees: Origination (up to 4.75%), late and dishonored payment
- Might be good for: People with poor to fair credit
Axos
Axos offers a simple and fast application that the lender says takes only three minutes, but youâll need a relatively high credit score to qualify.
- Minimum credit score: 740
- Loan terms: $5,000 to $50,000
- Fees: Origination (1% to 2%), late and insufficient funds
- Might be good for: People with good credit
Best Egg
Best Egg says it can offer you a decision on whether youâre approved for a loan within just a few minutes.
- Minimum credit score: 600
- Loan terms: $2,000 to $50,000
- Fees: Origination (0.99% to 5.99%)
- Might be good for: People who want a quick decision on their loan
Discover
Discover offers personal loans with no origination fee, customer service available seven days a week and allows you to return the loan funds within 30 days without paying interest.
- Minimum credit score: 660
- Loan terms: $2,500 to $35,000
- Fees: Late
- Might be good for: People who can pay off their loan quickly
FreedomPlus
Using a FreedomPlus loan to pay off debt may make it easier to qualify for a better rate.
- Minimum credit score: Not disclosed
- Loan terms: $7,500 to $50,000
- Fees: Origination (1.99% to 4.99%)
- Might be good for: People using the loan to pay off debt
LendingClub
LendingClub will pay off your creditors directly when youâre approved for a debt consolidation loan, saving you the hassle.
- Minimum credit score: 600
- Loan terms: $1,000 to $40,000
- Fees: Origination (3% to 6%), late
- Might be good for: People who want their debts paid directly
LendingPoint
LendingPoint says its technology can assess your financial situation beyond just your credit score and offer loans specially tailored to you.
- Minimum credit score: 580
- Loan terms: $2,000 to $36,500
- Fees: Origination (up to 6%)
- Might be good for: People with lower credit scores
LightStream
LightStream offers personal loans of up to $100,000, and your loan can be delivered as soon as the same day.
- Minimum credit score: 660
- Loan terms: $5,000 to $100,000
- Fees: None
- Might be good for: People who need a larger loan
Marcus by Goldman Sachs
After making 12 on-time payments, Marcus allows customers to choose to skip a month with no extra interest accrued.
- Minimum credit score: 660
- Loan terms: $3,500 to $40,000
- Fees: None
- Might be good for: People who want the ability to skip a monthâs payment
OneMain Financial
OneMain Financial doesnât require a minimum credit score, making this a good option for people establishing a credit history.
- Minimum credit score: None
- Loan terms: $1,500 to $20,000
- Fees: Origination (1% to 10% or $25 to $500), late and non-sufficient funds
- Might be good for: People with poor credit
Payoff
Payoff loans are designed for consolidating credit card debt, and the company says its customers see an average credit score boost of 40 points within months.
- Minimum credit score: 600
- Loan terms: $5,000 to $40,000
- Fees: Origination (up to 5%)
- Might be good for: People with significant credit card debt
PenFed
With a minimum loan of $600, PenFed offers among the smallest loans on the market.
- Minimum credit score: 670
- Loan terms: $600 to $50,000
- Fees: Late and insufficient funds
- Might be good for: People who need a small loan
Prosper
Prosper gives you multiple loan offers from their investors, meaning you may have many different rate and term options in one place.
- Minimum credit score: 640
- Loan terms: $2,000 to $40,000
- Fees: Origination (2.41% to 5%), check payment, late and insufficient funds
- Might be good for: People who want to see different loan options
SoFi
SoFi offers “unemployment protection,” pausing your payments if you lose your job, and helping you find a new one.
- Minimum credit score: Not disclosed
- Loan terms: $5,000 to $100,000
- Fees: None
- Might be good for: People in career transition
Universal Credit
Universal Creditâs minimum credit score is one of the lowest on the market, offering a good option if youâre still building your credit.
- Minimum credit score: 560
- Loan terms: $1,000 to $50,000
- Fees: Origination (4.25% to 8%), late
- Might be good for: People building their credit
Upgrade
Upgrade makes it easy to compare the monthly payments youâll need to make with varying loan terms.
- Minimum credit score: 560
- Loan terms: $1,000 to $50,000
- Fees: Origination (2.9% to 8%), late
- Might be good for: People deciding what size loan fits their budget
Upstart
Upstart considers more than just your credit score when making a loan decision, also evaluating your education and job history.
- Minimum credit score: 580
- Loan terms: $1,000 to $50,000
- Fees: Origination (0% to 8%), late, insufficient funds and paper copy
- Might be good for: People with a strong record at work or school
Other lenders to consider
The following three lenders are not Credible partners, so you wonât be able to easily compare your rates with them on the Credible platform. But they may also be worth considering if youâre looking for a debt consolidation loan.
Figure
Figureâs loan application is completely online, but you can reach support by phone seven days a week.
- Minimum credit score: 680
- Loan terms: $5,000 to $50,000
- Fees: Origination (up to 3%)
- Might be good for: People who want help with their application
Rocket Loans
Rocket Loans can make a pre-approval decision in seconds and funds loans as soon as the same day.
- Minimum credit score: 650
- Loan terms: $2,000 to $45,000
- Fees: Origination (1% to 6%), late and insufficient funds
- Might be good for: People who need their money quickly
Wells Fargo
Wells Fargo can fund its personal loans as soon as the same day, and the bank offers discounts for people who have a checking account with Wells Fargo.
- Minimum credit score: Not disclosed
- Loan terms: $3,000 to $100,000
- Fees: Late and insufficient funds
- Might be good for: People who bank with Wells Fargo
Methodology
Credible evaluated the best personal loan lenders based on factors such as customer experience, minimum fixed rate, maximum loan amount, funding time, loan terms and fees. Credibleâs team of experts gathered information from each lenderâs website, customer service department and via email support. Each data point was verified to make sure it was up to date.
How can I get a debt consolidation loan?
When youâre ready to move forward with a personal loan for debt consolidation, here are the steps youâll need to take.
- Take stock of your debt. Make a list of all the debts you want to consolidate. List all the accounts you have open, including the company name and balance. Also note the due dates, because you donât want to miss a payment while youâre working on your loan application. Total up the outstanding balances to determine how large a debt consolidation loan youâll need.
- Comparison shop. Itâs worthwhile to get quotes from multiple lenders to find the best interest rates, fees and terms you can qualify for. Using a site like Credible, you can easily compare offers from a number of lenders with just a little bit of your personal information.
- Prequalify. Most lenders have an online form you can fill out to receive a personalized quote and prequalify for a loan. Prequalifying typically requires a soft credit check, where the lender pulls your credit to give you an accurate assessment. These “soft pulls” donât affect your credit score. Youâll generally need to use your Social Security number.
- Apply. Once youâve selected the lender you want to go with, the company will give you instructions on how to proceed from the prequalifying process. Generally, youâll need to submit a bit more information for the formal application.
- Close. Closing on a personal loan for debt consolidation typically doesnât take long. Youâll need to sign documents acknowledging the terms of the loan and then the proceeds will be deposited into your bank account.
You can review rates from multiple lenders and apply for a personal loan using Credible.
How much can I save with a debt consolidation loan?
If you have high-interest debt, using a debt consolidation loan can save you a significant amount of money on your monthly payments. You can pay off your debt years faster and pay tens of thousands less in interest over the course of the loan.
Letâs look at an example for $10,000 in credit card debt at an average APR of 29%. Most credit card companies require a minimum payment of between 2% and 4% of your credit card balances, meaning your minimum payment is between $200 and $400 per month. Making minimum payments of $245, it would take about 15 years to pay off your total debt, and youâd pay more than $34,000 in interest. And thatâs assuming your APR doesnât change and your balance doesnât increase with new charges.Â
With a $10,000 debt consolidation loan for five years and an interest rate of 14.35%, the average on the Credible marketplace for the week of Sept. 20, youâd have a monthly payment of $235 â quite similar to your minimum payment on your credit card. However, youâll be done paying off the loan in just five years and pay just over $4,000 in interest. A seven-year personal loan would put your monthly payment at $189, and your total interest paid at a little more than $5,900. You can dig out of your debt more quickly and with much less out of your pocket.
What factors should I consider in a debt consolidation loan?
As you evaluate your debt consolidation loan options, be sure to compare and consider the following:
- Interest rate and APR â The interest rate is the amount you pay to borrow money. This is how the lender makes money. Youâll likely see this expressed as APR, or annual percentage rate. This is a broader measure that takes into account the interest rate and any fees, and represents the true cost of borrowing money. The lower the interest rate and APR, the lower your monthly payments will be and the less in interest youâll pay over the life of the loan. People with higher credit scores typically can qualify for the lowest rates.
- Fees â Not all lenders charge fees, but many do. One of the most common is an origination fee, usually charged as a percentage of the loan amount. This money is deducted from the amount you receive from the loan. If you have excellent credit, youâll likely be able to find a personal loan for debt consolidation that doesnât require an origination fee. Lenders may charge other fees, too, such as an application fee, prepayment penalty or late payment fees.
- Loan terms â The term of the loan is the length of time you have to repay. Repayment terms can be as short as one year, or as long as seven years or more. The longer your term, the lower your monthly payment will be â but the more you will ultimately pay in interest over the life of the loan. In general, you want the shortest term possible with a monthly payment that fits comfortably in your budget.
Debt consolidation loan alternatives
A personal loan for debt consolidation isnât your only option. Here are a few others you may consider:
- 0% balance transfer credit card â These are credit cards that allow you to transfer balances from other cards onto them and not pay interest for a period of time â at least six months. This can give you some breathing room to pay down your debt without racking up new interest charges. However, after the 0% introductory period ends, youâll be left with a much higher interest rate. You may also run into fees for transferring the balance. You may need good to excellent credit to qualify for a 0% card.
- Home equity loan â If you own your home, you may have built up equity. Equity is the difference between what the home is worth and the amount you owe on your mortgage. Banks and other lenders will allow you to borrow against this equity using a home equity loan or home equity line of credit (HELOC). These loans typically have lower interest rates than youâd find on a debt consolidation loan. However, you may pay higher closing costs and you also put your home at risk of foreclosure if you fail to make your payments.
- 401(k) loan â You may be able to borrow against the money you have saved in your companyâs retirement plan. These loans also have lower interest rates, and wonât affect your credit score. However, you wonât be earning as much on your investment during the period of the loan and you may be forced to repay the money quickly if you end your employment. You may also face tax penalties if you fail to repay the money on time.
Comparison shopping for personal loans using a website like Credible can help ensure you find the best debt consolidation loan for your needs.