Debt Consolidation Loans for Bad Credit

Consolidate debts into one debt - save money

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Updated on 2020-06-27

Consolidating loans and other bills can seem like a huge task. To make this process easier, we have gathered all the necessary information together with our own experience on the subject. We have been working with loans and debt consolidation since 2008 and have contact with a large number of borrowers who, for different reasons, have taken loans over a long period.

Our recommendations in short:

  • First, choose a lender or two that accepts your credit score. You can find your credit score at: Experian. Click here to see which lenders we would recommend for different credit scores.
  • If you need amounts near $30,000 or higher, we would recommend you to split the sum in two, and try to secure two loans instead of one. Most often, it’s easier to secure two smaller loans than a single loan for the same sum. Always try to find loans with a lower rate of interest.
  • Choose a repayment period that is neither too long nor too short. A long pay-off term means you are paying more for borrowing. A short pay-off time means the monthly paying is higher which can ultimately be a burden. Find the balance that works best for you and your budget.
  • Today, most lenders only do what is called a soft credit check that doesn’t affect your credit score when you apply for a loan or check what you are eligible for in terms of the loan amount or interest rate charged. When you accept the lender’s offer, a hard credit check will be done and it will impact your credit score negatively, but only for a period of time. You can rest assured you can shop around for the loan you need with different lenders without it dragging down your credit score with every check.

This is what we recommend today (2020-06-27): If you have a credit score over 580, we recommend you start your search with Lifeloans. A score from 550 and lower, our recommendation is QuickLoanLink (up to $35,000) and Loan Pioneer (max $5,000).

If you have a credit score under 550 we would recommend you try to improve your credit score, which is possible without paying off debt right away.

If you are not satisfied with the interest rate offered, see more loans below.

FAQ

Should I use a direct lender or not?

In short, your chances of being offered a loan through a connector will be much higher than through a direct lender. The problem with direct lenders lies in the inability they have to provide loans in all states with consistency. Not many lenders can do that, and if you have a lower credit score than 600 it will be really hard to qualify. With that said, it doesn’t hurt to try and find direct lenders with lower interest rates.

What if I need more money than what was offered?

If you need a bigger loan than what was offered, take the amount you were offered if you feel it’s a better deal than your existing loans, and try again later. Consolidate what you can. In the meantime try to improve your credit score. New loans might keep you from getting approved for another one, but over time that will change. Also, other lenders can see you have been paying off your loan, which is a good indicator that you are a low risk if you take on another loan. If you’re denied a debt consolidation loan, read more about what you can do here.

Good luck!

By Per – Updated on 2020-06-27

Best Debt Consolidation Loans for Bad Credit

Loans
Amounts
Bad credit
Loan term
Features
1 QuickLoanLinkUp to $35,000
  • Allowed
  • Credit Score: 550
2 mths to 7 yrs
  • Credit Check: Soft
  • APR from: 6.90%
  • Time to decision: 2 min
  • States: 49
  • Type of service
2 LifeLoansUp to $40,000
  • Allowed
  • Credit Score: 580
2 mths to 5 yrs
  • Credit Check: Soft or Hard
  • APR from: 5.99%
  • Time to decision: 2 min
  • States: 46
  • Type of service
3 Personal LoansUp to $35,000
  • Allowed
  • Credit Score: 580
3 mths to 6 yrs
  • Credit Check: Soft
  • APR from: 5.99%
  • Time to decision: 2 min
  • States: 50
  • Type of service
4 CashUSAUp to $10,000
  • Allowed
3 mths to 6 yrs
  • Credit Check: Soft
  • Individual rates
  • Time to decision: 2 min
  • States: 49
  • Type of service
5 BetterLoansMutualUp to $5,000
  • Allowed
  • Credit Score: 580
14 days to 1 yr
  • APR from: 7%
  • Time to decision: 2 min
  • States: 45
  • Type of service
6 OppLoansUp to $5,000
  • Allowed
9 mths to 3 yrs
  • APR from: 99%
  • Time to decision: 2 min
  • States: 19
  • Type of service
7 LoanStartUp to $40,000
  • Allowed
  • Credit Score: 580
2 mths to 7 yrs
  • Credit Check: Soft or Hard
  • APR from: 4.84%
  • Time to decision: 2 min
  • States: 50
  • Type of service

Debt Consolidation Loans for Bad Credit

Millions of Americans have debt they are working to pay off in both a quick and cost-effective way. From credit card debts with high interest rates across multiple cards to personal loans with above-average rates of interest, consumers are often torn between continuing their payments each month or finding another strategy to reach their debt payoff goals.

Debt consolidation loans are one way to accomplish the task of paying off debt, improving poor credit, and making life simpler from cash flow and money management perspectives. Before diving headfirst into applying, though, it is important to answer the questions, how does it work, what are the pros and cons, and what are considerations with debt consolidation loans. This guide has you covered.

A Lower Interest Rate Each Month Is The Key

Put in the simplest terms, it is a process of combining outstanding debts into a single loan with a lower interest rate each month. Credit card balances, personal loans, or any other type of debt can be consolidated under a new loan, potentially making it simpler for borrowers to reach the end of their payoff goal a little faster while also paying a lower interest rate. With a debt consolidation loan, an individual applies and receives approval for a new loan that pays out a lump sum. That amount of money received, less any fees associated with taking out the loan, is then used to pay off other debts e.g. from a high-interest credit card or a personal loan.

Borrowers do not magically erase their debt with a consolidation loan; they instead change its structure so that monthly payments are easier to manage or the total cost of borrowing (i.e., the rate of interest) is less costly.

The Pros and Cons

There are several pros and cons inherent to taking out a debt consolidation loan.

The Pros

Streamlined Payments

Common among consumers is having a single loan with a single payment each month which makes repaying loan debts simpler than having to pay multiple monthly debts. For instance, having four or five credit card balances with multiple monthly payments means having four or five monthly due dates and different payment amounts to keep track of. A debt consolidation loan creates a single payment each month and one due date to manage, making the process easier over time.

Reducing Debt Costs and Interest Rates

In addition to the simplified payment once a month, borrowers may also experience a reduced cost of the debt they are repaying by taking going through this process. On average, credit card interest rates are more than 15%, with many consumers paying more than 20% on these debt balances each month. Consolidating loans means taking out a new loan to pay off a number of other debts, generally unsecured ones. Reducing to a lower rate of interest brings down the total interest charges on the remaining, unpaid debt each month, saving borrower hundreds to thousands of dollars over time.

Credit Score Improvement

Another benefit is less known, but it plays an important role in boosting a borrower’s financial standing over time. Taking out a new loan may initially lower one’s credit score by a few points. All lenders over $1,000 do a credit check, so there is virtually nothing as a no credit check debt consolidation loan. Even with a credit score under 600 it’s possible to secure smaller unsecured loans with bad credit on $2,000 for example.

However, as on-time payments are made to the loan, and the paid off debts remain with $0 balances, poor credit improves. For those who pay off credit card balances with debt consolidation loans, the immediate increase in available credit also helps improve poor credit by bringing down the credit utilization rate.

The Cons

Although there are several ways in which debt consolidation loans are beneficial, there are caveats as well.

The Credit History Factor

First, getting a debt consolidation loan with an affordable rate of interest can be a challenge if poor credit is in play. If you have missed payments in your financial past, a bankruptcy, a court judgment, a credit card debt or other negative marks in your credit report, you may not qualify for a lower-interest debt consolidation loan. This outcome cancels out the benefit of a lower-cost debt repayment plan. However, for borrowers who initially receive a higher interest rate offer, the lender may still accept it for the simplification factor. Having one payment per month is often easier than several, even when the cost of borrowing is higher. Check our subpage low interest debt consolidation loans for lenders with lowest rates.

Lengthy Repayment – Low monthly payments

Another downside is the longer repayment term offered on some loans. Most lenders offer debt consolidation loans with three or five-year repayment schedules. Although the monthly payment and rate of interest is fixed during the term, the lengthy timeframe from start to finish can seem like an eternity for those wanting to get out of debt quickly. If a shorter repayment term is selected, the payment per month will be higher but will probably also have a somewhat lower rate of interest. A longer repayment term can bring down the monthly payment, but the total interest paid over time is likely to be more. Borrowers need to consider these options before deciding on a applying.

Guaranteed Debt Consolidation Loans

Looking for guaranteed debt consolidation loans might be tempting in case one has been denied a loan. But unfortunately no lender can guarantee anyone a loan, there is always some kind of credit check and overlook of your credit report. The difference between different lenders can be huge, some lenders only approve credit score above 700 while others approve 500-550 credit score loans and maybe even lower.

The difference from a Personal Loan

While it’s basically is the same type of loan, some lenders that offer a debt consolidation loan will also help you by contacting the companies (where you have your credit card, personal loan etc.) and try to negotiate a lower interest rate. Usually this service shouldn’t add higher interest rates but it can add a higher fee or an additional fee. They both will overlook your credit report and credit history.

Considerations

When it comes to figuring out if this is the right move for you, there are certain aspects to review and consider beforehand. First, many lenders charge fees that may include any or all of the following:

  • Application fees – charged when submitting an application
  • Prepayment fees – charged when a loan balance is paid off prior to its final payment date
  • Late payment fees – charged when a monthly payment is submitted after the due date
  • Origination fees – charged when a loan is approved
  • Funding fees – charged when a loan is approved or funded

These charges are in addition to the interest rate offered by the lender on a new loan. It is important to understand what fees are charged on the loan to be sure that it is an acceptable solution for debt repayment over time. One of the most overlooked charges is the prepayment penalty, charged when you pay off a loan balance before the end of the repayment term. It may not be wise to use a debt consolidation loan to pay off a debt with a prepayment fee or to use one that includes a prepayment fee if the plan is to pay off the loan well before its final due date.

Offers with High Interest Rates Isn’t All Bad

While the best possibility would be to have a lower interest rate, borrowers will also want to consider their options when a loan comes with a higher interest rate than they anticipated. Lenders look to your credit report and history, income, and in some cases, other assets like checking or savings account balances, to determine eligibility for a new loan. If these qualification requirements are not met, a high interest rate may be offered.

When that is the case, you have the option to wait until your credit improves and reapply when you are a better candidate for a new loan. You may also want to go ahead with the consolidation loan, despite the higher interest rate, if the current debt is difficult to manage each month or you want a single payment instead of several. It is important that you avoid a high-interest credit card if offered.

Strategies for Debt Consolidation

Most borrowers who are in the market for a debt consolidation loan go to a lender to see what they may qualify for, including banks, credit unions, or online lenders. Each financial institution offering consolidation loans will have various requirements for qualifying for the most affordable interest rate, as well as their own fees for taking out a new loan. It is necessary to evaluate these options carefully to ensure the loan makes the most sense for your specific financial circumstances and need or desire for consolidating your debts.

In addition to lenders that offer debt consolidation loans, there are other strategies for consolidating debts. The most common includes the process of debt settlement.

Understanding Debt Settlement

Some companies offer debt settlement which differs from a debt consolidation loan. Through the process of debt settlement, you work with your creditors directly or hire a company to do it for you to negotiate a lower amount than you owe. Once an amount is agreed upon, a single payment is made to wipe out the debt for good. In most cases, debt settlement requires a borrower to be under financial stress or hardship before a creditor accepts a settled amount. Debt consolidation loans do not have this requirement nor do they require negotiation with creditors.

The Bottom Line

Making the decision to consolidate debt is not always simple. You must take the time to determine which route is best suited for you, how well you are positioned to get a loan or help through a settlement service, and the fees associated with either. It is also necessary to consider your ability to repay the debt you owe each month moving forward and how long the repayment term is for a debt consolidation loan. Finally, understanding the fees charged for a consolidation loan, including prepayment penalties, origination fees, and the interest rate you pay on the borrowed funds, is a crucial part of the process. Overlooking any of these factors may make it more costly to you in the future.

Take into consideration your need to consolidate your debts, your ability to qualify for a loan, and your willingness to keep other debts to a minimum before signing on the dotted line for your new debt consolidation loan.

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