By: Elizabeth Wells
As of Friday, May 29, 2020
Debt consolidation loans allow borrowers to use a fixed-rate, unsecured personal loan to pay off or reduce multiple unsecured debts more easily. These loans are offered by traditional brick-and-mortar banks, credit unions and online lenders. Check out eight top lenders of personal loans for debt consolidation and find out what it takes to qualify and how to apply.
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When shopping for the best debt consolidation loan, look for the lowest interest rate, a loan amount that meets your needs, an affordable and workable repayment term and low to no fees. Loan details presented here are current as of the publish date. Check the lenders’ websites for more current information. The top lenders listed below are selected based on factors such as APY, loan amounts, fees, credit requirements and broad availability.
| Lender |
Best for
|
Est. APR
|
|---|---|---|
| Best Egg |
Best for high-income earners with good credit
|
5.99% - 29.99%
|
| Payoff |
Best for consolidating credit card debt with below-average credit
|
5.99% - 24.99%
|
| LightStream |
Best for high-dollar loans and longer repayment terms
|
5.99% - 16.79%
|
| PenFed |
Best for smaller loans and no fees
|
6.49% - 17.99%
|
| OneMain Financial |
Best for fair to poor credit
|
18.00% - 35.99%
|
| Discover |
Best for good credit and next-day funding
|
6.99% - 24.99%
|
| Upstart |
Best for little credit history
|
6.18% - 35.99%
|
| Marcus by Goldman Sachs |
Best for consolidating large debts
|
6.99% - 28.99%
|
A debt consolidation loan is a type of personal loan that can help you combine several high-interest debts into a new (hopefully lower-rate) loan. When managed responsibly, a debt consolidation loan can help you save money on interest and potentially get out of debt faster.
In addition to the possibility of saving money on interest, a debt consolidation loan comes with another big potential perk. If you use a consolidation loan to pay off multiple debts, especially credit card accounts, the decision might have a positive impact on your credit score.
Credit scoring models, like FICO and VantageScore, place a lot of weight on your credit utilization ratio (the relationship between your credit card limits and balances). When a new consolidation loan has the effect of lowering your credit utilization ratio, your credit score might climb as a result.
Of course, you’ll need to avoid making late payments or charging your credit card balances back up again on your recently paid-off accounts. Otherwise, you could put your credit into a worse position.
A debt consolidation loan is a type of personal loan. As of May 27, 2020, the average interest rate on a personal loan is 11.58%.
As you can see from the chart above, interest rates on personal loans commonly range from around 6 percent to 36 percent. In general, a higher credit score may help you qualify for a lower interest rate. However, keep in mind that lenders may consider other factors when you apply for a consolidation loan, such as your income, existing debt obligations and more.
A debt consolidation may be a good fit if it can help you accomplish worthwhile financial goals. If you’re considering a debt consolidation loan, some helpful questions to ask include:
Did you answer yes to any of the three questions above? If so, it might be worth doing some initial research to see if you can prequalify for any attractive loan offers. “If you currently have multiple debt obligations that you are juggling, a consolidation loan can be a way to simplify your life and possibly save on interest costs,” says Greg McBride, CFA, Bankrate chief financial analyst. “A good candidate is a borrower who has steady income, decent credit, a discipline to refrain from running up more debt and a desire to pay off what is currently owed.”
Before you fill out an official loan application, it’s wise to do a little homework in advance. Below are five important steps you should take prior to applying for a debt consolidation loan.
Now that you’re ready to start comparing lenders, here are some basic steps that should help you find the best deal for your situation.
The best way to choose your lender is to take the time to shop around and compare loan offers. Some factors you’ll want to compare include:
If a lender will allow you to prequalify and get a rate quote with only a soft credit inquiry, it may be a good idea to take advantage of the opportunity. Prequalifying with multiple lenders can better equip you to make an apples-to-apples comparison about the overall cost of the loan. Tools like Bankrate’s debt consolidation calculator can also be helpful.
Overview: Best Egg offers unsecured personal loans for a variety of purposes, including debt consolidation. The best rates and terms go to borrowers who earn $100,000 or more and have a credit score of at least 700, which is “good” on the FICO scale. Some borrowers can qualify to borrow up to $50,000, although most loans range from $2,000 to $35,000.
Perks: There is no penalty if you pay off your consolidation loan ahead of schedule. Application and approval are done online, and it’s possible to get your money within a single business day.
What to watch out for: Origination fees range from 0.99 percent to 5.99 percent, and the fee is taken off the top of the loan. So, if you borrow $10,000 and pay a 1 percent origination fee, $9,900 will be disbursed to you, but you still pay back $10,000. There is also a $15 fee for late payments.
| Lender | Best Egg |
|---|---|
| Bankrate Rating | 4.7 / 5.0 |
| Min. Credit Score | 640 |
| Est. APR | 5.99% - 29.99% |
| Loan Amount | $2,000 - $35,000 |
| Term Lengths | 3 years or 5 years |
| Min. Annual Income | None |
| Fees | Origination fee: 0.99% to 5.99% of loan amount. Late fee: $15 |
Read Bankrate's expert Best Egg Review
Overview: Payoff is different from other lenders in that its debt consolidation loans are for paying off just credit cards. The application and approval process are done online.
Perks: There are no application fees, prepayment penalties, late fees or annual fees. Borrowers with so-so credit and a debt-to-income ratio up to 50 percent may qualify. As with any debt consolidation loan, there’s a chance you can raise your credit score if you abide by the terms of your loan.
What to watch out for: Origination fees range from 0 percent to 5 percent. Payoff does not issue loans in Massachusetts, Mississippi, Nebraska, Nevada or West Virginia.
| Lender | Payoff |
|---|---|
| Bankrate Rating | 4.6 / 5.0 |
| Min. Credit Score | 640 |
| Est. APR | 5.99% - 24.99% |
| Loan Amount | $5,000 - $35,000 |
| Term Lengths | 2 to 5 years |
| Min. Annual Income | None |
| Fees | Origination fee: 0% to 5% of loan amount |
Read Bankrate's expert Payoff Review
Overview: LightStream offers unsecured, fixed-rate personal loans as big as $100,000, with up to seven years to repay. But you must have excellent credit and sufficient assets and income to qualify for a jumbo-size personal loan.
Perks: LightStream guarantees that it will beat any competitor’s rate by 0.1 percentage points. There are no origination fees or penalties for paying off your consolidation loan early. The application and approval process is done online, making it possible to get approved and have the money deposited into your account on the same day.
What to watch out for: You must have a credit score of at least 660 to qualify. Loans set up without automatic payment are 0.5 percent higher.
| Lender | LightStream |
|---|---|
| Bankrate Rating | 4.6 / 5.0 |
| Min. Credit Score | 660 |
| Est. APR | 5.95% - 16.79% (with autopay) |
| Loan Amount | $5,000 - $100,000 |
| Term Lengths | 2 to 7 years |
| Min. Annual Income | None |
| Fees | None |
Read Bankrate's expert Lightstream Review
Overview: Pentagon Federal Credit Union, known as PenFed, offers unsecured, fixed-rate personal loans for debt consolidation. PenFed is insured by the National Credit Union Administration (NCUA). Credit unions have lower costs and fees than other lenders because they are not for-profit businesses owned by their members.
Perks: PenFed does not charge origination fees, annual fees or prepayment penalties. You can borrow as little as $500. The application and approval process can be done online or at one of PenFed’s 51 branches. You can get approval within one business day. Credit unions tend to be a little more forgiving about having so-so credit.
What to watch out for: You must become a member of the credit union to receive a loan, and there is a minimum charge of $20 for late payments.
| Lender | PenFed |
|---|---|
| Min. Credit Score | Not specified |
| Est. APR | 6.49% - 17.99% |
| Loan Amount | $600 - $20,000 |
| Term Lengths | Up to 5 years |
| Min. Annual Income | None |
| Fees | Late fee: $20-$25 for late payments. |
Overview: OneMain Financial offers unsecured, fixed-rate personal loans to consumers with damaged credit. Loan amounts are smaller and rates are higher than typical debt consolidation personal loans. Your credit history, income and debt load determine whether you qualify.
Perks: There is no penalty for paying off the loan early. If you do not qualify for an unsecured personal loan, OneMain may accept your car, boat, RV or motorcycle as collateral, provided it is insured and appraises at a sufficient value.
What to watch out for: OneMain charges an origination fee, which varies by state, and rolls it into the monthly payments. Late fees also vary by state. OneMain Financial does not operate in Alaska, Arkansas, Connecticut, Massachusetts, Rhode Island and Vermont. Additionally, borrowers in Florida, Iowa, Maine, Mississippi, North Carolina, New York and Texas have unsecured loan limits of $7,000 to $8,500.
| Lender | OneMain Financial |
|---|---|
| Bankrate Rating | 3.9 / 5.0 |
| Min. Credit Score | Not specified |
| Est. APR | 18.0% - 35.99% |
| Loan Amount | $1,500 - $20,000 |
| Term Lengths | 2 to 5 years |
| Min. Annual Income | None |
| Fees | Origination fee: Varies by state; 1% to 10% of loan amount or a flat rate of $25 to $400. Late fee: Varies by state; $5 - $30 or 1.5% - 15%. |
Read Bankrate's expert OneMain Financial Review
Overview: Discover Financial Services offer unsecured personal loans for debt consolidation, with the option to pay creditors directly. The average Discover borrower has very good credit.
Perks: Discover personal loans have no origination fees, closing costs or prepayment penalties. It’s possible to get an approval decision the same day you apply and get your money the next business day, provided your application is accurate and complete.
What to watch out for: There is a $39 penalty for late payments, which is higher than the late fee for many other lenders. Co-signers are also not permitted, and Discover personal loans cannot be used to pay for college education expenses or to pay off a secured loan.
| Lender | Discover |
|---|---|
| Min. Credit Score | Not specified |
| Est. APR | 6.99% - 24.99% |
| Loan Amount | $2,500 - $35,000 |
| Term Lengths | 3 to 7 years |
| Min. Annual Income | $25,000 |
| Fees | Late fee: $39 |
Overview: Upstart offers unsecured personal loans for debt consolidation to consumers who don’t have much credit history but have a regular income. Upstart considers an applicant’s education, area of study, earning potential and job history.
Perks: Upstart does not charge prepayment penalties. Payment options are flexible, including the option to pay by check. The initial application generates a soft credit pull that does not hurt your score. You can get your loan money in one business day after approval.
What to watch out for: There is no rate discount with automatic payments. You must have a U.S. bank account. Upstart charges origination fees of up to 8 percent, which is steep.
| Lender | Upstart |
|---|---|
| Bankrate Rating | 3.8 / 5.0 |
| Min. Credit Score | 620 |
| Est. APR | 6.18% - 35.99% |
| Loan Amount | $5,000 - $30,000 |
| Term Lengths | 3 or 5 years |
| Min. Annual Income | None |
| Fees | Origination fee: Up to 8%. Late fee: The greater of 5% of the unpaid amount or $15 |
Read Bankrate's expert Upstart Review
Overview: Marcus by Goldman Sachs offers unsecured personal loans for debt consolidation to consumers who don’t have much credit history.
Perks: You can change the date your monthly bill is due up to three times during the life of the loan. The $40,000 loan limit can accommodate borrowers with a lot of debt to consolidate. Your application triggers a soft pull on your credit, which doesn’t affect your credit score. There are no fees.
What to watch out for: No co-signers are allowed. It can take five days to receive your loan funds. Consumers with lackluster credit may not qualify.
| Lender | Marcus by Goldman Sachs |
|---|---|
| Bankrate Rating | 4.8 / 5.0 |
| Min. Credit Score | 660 |
| Est. APR | 6.99% - 28.99% |
| Loan Amount | $3,500 - $40,000 |
| Term Lengths | 3 to 6 years |
| Min. Annual Income | None |
| Fees | None |
Read Bankrate's expert Marcus by Goldman Sachs Review
Debt consolidation loans can be useful, but they’re not the perfect fit for everyone. If you’re looking for alternatives to debt consolidation loans, the list below breaks down some additional options you may want to consider.
Sometimes, it may be cheaper to consolidate your debt with a 0 percent balance transfer credit card offer. (When you calculate potential savings, don’t forget to factor balance transfer fees into the equation.) If you can pay off your full debt before the balance transfer offer expires (often 12 to 18 months), this option might be a better deal.
Keep in mind that using a balance transfer card to pay off existing credit card debt likely won’t lower your credit utilization as effectively as a debt consolidation loan (which is a type of ). As a result, a balance transfer card might not initially have the same positive impact on your credit score.
Another option people often use to pay off existing debt is tapping into the equity in their home. Home equity loans> and lines of credit often allow borrowers to secure lower interest rates by using their homes as collateral in exchange for financing. Just be sure to factor the risks as well as the benefits if you’re considering this option. If you can’t afford to make your payments as agreed, the lender may be able to seize your home.
Debt relief services, commonly known as debt settlement companies, offer another way to deal with your debt if you’re in over your head and can’t qualify for a consolidation loan. These companies can reach out to your creditors and debt collectors on your behalf in an effort to settle what you owe for a lesser amount.
If you decide to pursue debt relief services (perhaps as an alternative to bankruptcy), you should be aware that the fees these companies charge can sometimes be steep. Take your time to fully research fees, reviews and other details before applying. It’s also wise to compare multiple debt relief companies before you commit.
An alternative to debt relief services that can help you take control of an out-of-control debt situation is credit counseling. Credit counseling companies are often (though not always) nonprofit organizations. In addition to financial and debt counseling, these companies may also offer a service known as a debt management plan, or DMP for short.
With a DMP, you make a single payment to a credit counseling company, which then divides that payment among your creditors. The company negotiates lower interest and fees on your behalf to hopefully lower your monthly debt obligation and help you pay off your debt faster.
Keep in mind that even with nonprofit organizations, DMPs are rarely free. Typically, you will pay a monthly fee (often $20 to $50) to the credit counseling company for managing your DMP over a three- to five-year term.
Debt consolidation loans can save you money in interest charges, make budgeting easier and reduce bill-paying stress. If not used wisely, though, a debt consolidation loan can add to your troubles.
If, for example, you take out a loan to pay off credit cards and then start using those cards again, you are digging an even deeper hole that you may not be able to climb out of. If you have more questions about debt consolidation, check out our Debt Consolidation Guide.