Personal loans have many purposes, including debt consolidation, which is a refinancing strategy of taking out a fixed-rate, unsecured loan to pay off or reduce multiple unsecured debts, such as credit cards, medical bills and student loans. Debt consolidation loans are offered by traditional brick-and-mortar banks, credit unions and online-only lenders.
Check out five top lenders of personal loans for debt consolidation and find out what it takes to qualify for a credit consolidation loan and how to apply. Then, use Bankrate’s debt consolidation calculator to see how much you could save.
Bankrate’s Best Debt Consolidation Loan Picks for 2019
- Best for high-income earners with good credit: Best Egg
- Best for consolidating credit card debt with below-average credit: Payoff
- Best for high-dollar loans and longer repayment terms: LightStream
- Best for smaller loans and no fees: PenFed
- Best for fair to poor credit: OneMain Financial
Best Egg – Best for high-income earners with good credit
Best Egg offers personal loans of $2,000 to $35,000 with APRs ranging from 5.99 percent to 29.99 percent. 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.
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 pay back $10,000. Best Egg also requires at least three years of credit history with no delinquencies.
The repayment period ranges from three to five years, and there is no penalty if you pay off your consolidation loan ahead of schedule. There is a $15 fee for late payments. Application and approval are done online, and it’s possible to get your money within a single business day.
Payoff – Best for consolidating credit card debt with below-average credit
Payoff is different from other lenders in that its debt consolidation loans are for paying off just credit cards. If you have a pile of credit cards with double-digit interest rates and your credit history is so-so but not terrible, an unsecured, fixed-rate consolidation loan could ease your mind and boost your credit score if you abide by the loan terms.
Payoff’s APRs range from 5.99 percent to 24.99 percent for loans between $5,000 and $35,000, with repayment terms of two to five years. The minimum APR for loans above $15,000 is 6.99 percent. Origination fees range from 0 to 5 percent. There are no application fees, prepayment penalties, late fees or annual fees.
The application and approval process are done online. A minimum FICO score of 640, which is “fair,” is required, as is a debt-to-income ratio of 50 percent or lower and three years of credit history. Payoff does not issue loans in Massachusetts, Mississippi, Nebraska, Nevada and West Virginia.
LightStream – Best for high-dollar loans and longer repayment terms
LightStream offers unsecured, fixed-rate personal loans as big as $100,000, with up to 12 years to repay. But you must have excellent credit, meaning you must have a strong credit history of at least five years with different types of credit, such as a mortgage and credit cards. You also need sufficient assets and income to qualify for a jumbo-size personal loan.
APRs for a LightStream debt consolidation loan of $50,000 or more range from 5.95 percent to 16.79 percent. Loans set up without automatic payment are 0.5 percent higher. LightStream guarantees it will beat any competitor’s rate by one-tenth of a percentage point (0.1 percent).
The smallest LightStream debt consolidation loan is $5,000. You must have a credit score of at least 660 to qualify. LightStream does not charge origination fees and there are no penalty fees for paying off your consolidation loan early. You can borrow the money for just about any purpose, including buying a horse or an airplane. The entire loan application and approval process is done online. It’s possible to get approved and have the money deposited into your account on the same day.
PenFed – Best for smaller loans and no fees
Credit unions are known to have lower fees than traditional banks and other lenders because they are not for-profit businesses owned by their members. Pentagon Federal Credit Union offers unsecured, fixed-rate personal loans for debt consolidation with no origination fee. That’s big if you consider the impact of origination fees on loan costs. For example, a $20,000 loan with a 5 percent origination fee would cost you an extra $1,000. PenFed also does not charge application fees, annual fees or prepayment penalties. There is a minimum charge of $5 for late payments.
And while many personal loan lenders require you to borrow at least several thousand dollars, PenFed’s minimum is only $500. The maximum is $25,000. APRs range from 6.49 percent to 17.99 percent and repayment terms stretch out up to 60 months. Credit unions tend to be a little more forgiving about bruised credit, but the best rates and terms still go to the most creditworthy borrowers. 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. The loan is disbursed by check.
OneMain Financial – Best for fair to poor credit
OneMain Financial offers unsecured, fixed-rate personal loans to consumers with damaged credit. Loan amounts range from $1,500 to $30,000 with APRs ranging from 16.05 percent to 35.99 percent. Payoff periods range from two to five years. The lender does not post a minimum required credit score to qualify, but the average OneMain borrower has a score of 622, which is “fair” on the FICO scale. Your credit history, income and debt load determine whether you qualify.
OneMain charges an origination fee, which varies by state, and rolls it into the monthly payments. Late fees also vary by state. 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.
You can apply for a personal loan for debt consolidation online, then schedule an appointment at one of OneMain’s more than 1,600 branches to close the loan. OneMain Financial does not operate in Alaska, Arkansas, Connecticut, Massachusetts, Rhode Island and Vermont.
Who is a good candidate for a debt consolidation loan?
If your unsecured debts make up 40 percent or more of your income, a debt consolidation personal loan might be worth considering.
“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.”
What do I need to qualify for a personal loan?
A lender will look at your credit history, income and your debt-to-income ratio to see whether you have been a reliable borrower and have the means to repay the loan on time. Before you apply for a loan, get your free credit report and credit score. Credit score requirements vary by lender, but most lenders want a borrower with a FICO score of at least 670. Some lenders work with consumers with tainted credit, though, so don’t assume a so-so credit score will disqualify you.
How do I apply for a debt consolidation loan?
First, decide how much you need to borrow and what you can afford to pay each month. Use our calculator to determine the cost of different loan scenarios. Then, shop around for the best loan rates and terms. Once you’ve chosen a lender, fill out the application and provide the requested documentation. An application will result in a “soft pull” on your credit report, which does not hurt your credit score. If the lender preapproves you and you agree to a loan offer, it will do a “hard pull” on your credit report, which does affect your credit score slightly.
Once you are approved, you will receive the loan funds. Technology makes it possible to apply for a loan, get approval and have the loan money deposited into your account in one business day. The timeframe differs with lenders, though, and it can take a week or longer, depending on the loan and other factors.
What are the benefits of a debt consolidation loan?
- It can save you money. If you have several credit cards with double-digit interest rates and you qualify for a debt consolidation personal loan at a lower rate, you can save a heap of money in interest and fees you may be charged, such as late fees.
- It simplifies your finances. Debt consolidation loans combine multiple debts into one monthly payment. The loans have fixed rates and a set repayment term, so your monthly payments stay the same and you know when the debt will be paid off. Credit card rates are variable, so your monthly payments differ, depending on your balance, and it’s hard to know when they will be paid off.
- No collateral is required. Credit consolidation loans are unsecured, so you don’t have to put up an asset, such as your house or car, to secure the loan.
- It can boost your credit score.
What are the downsides of a debt consolidation loan?
- You run the risk of going into deeper debt. Unless you can rein in the spending that got you into debt in the first place, a debt consolidation loan will not help you. If you use the loan to pay off your credit cards, then start running up card balances again, you’re digging yourself into a deeper debt hole.
- The monthly payments can be high. Because you are paying off several debts with the loan, your monthly payments can be steep. It’s not like making minimum monthly payments on several credit cards. You have to be sure you can handle the payments until the loan is repaid.
If you have more questions about debt consolidation, check out our Debt Consolidation Guide.