How to get a Loan to Consolidate Debt if You Have Bad Credit
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How to get a Loan to Consolidate Debts if You Have bad credit
The process of obtaining a debt consolidation loan with bad credit may require you to build your credit, or adding co-signers.
Last updated on Jan 24, 2023
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Finding a loan even if you have bad credit could require some shopping around however, there are other options that include loans through credit unions as well as online lenders.
Certain lenders cater to those who have bad credit (a credit score of less than 630) and will consider other factors in addition to the score, including income, education and employment experience.
This article will help you determine if the credit consolidation loan is the best option to pay off your debts, and how to get one.
What exactly is a debt-consolidation loan?
An credit consolidation loan is an individual loan used to combine to pay down multiple loans in one go — think the balances on your credit cards, medical bills or other unsecured personal loans which means you’re left with a single monthly installment.
In the ideal scenario, this installment comes with a lower interest rate than your current debts and can help you save the money you spend and pay off debt quicker.
Is a debt consolidation loan a good idea?
If you’re having trouble paying off debt and can qualify for a lower interest rate for an loan, debt consolidation is usually a good option.
Here are a few advantages:
It helps save the cost of interest. The most significant benefits of debt consolidating is amount you save on interest rates by consolidating debt at the lower interest rate. Just a few percentage points makes a big difference in the total amount of interest saved. Use our to see the savings you could make.
It is possible to reduce debt more quickly. If you consolidate at a lower interest rate and you are able to get out of debt faster by putting the savings into the balance remaining. You can also select an early repayment period for the debt consolidation loan, as long as you are able to pay the monthly installments.
It streamlines the process. Instead of keeping the track of several debts, by taking out debt consolidation loan you’ll only have one installment to pay. Debt consolidation loans also come with fixed terms, so you’ll know your payoff date that can help keep you focused.
It could help improve your credit. Although taking out a debt consolidation loan could temporarily knock a few points off of your credit score, the long-term result should be positive once you begin to get rid of debt.
How to get the debt consolidation loan with bad credit
1. Check your credit report
Are errors on your credit report the reason your score is low? Look for any errors, such as wrong accounts, improperly reported payments , or incorrect credit limits.
You can access your credit report weekly for free with each of the three major credit bureaus- Experian, Equifax and TransUnion by with .
Even a small bump on your score can be a good indication qualify you for an consolidating debt loan. A change from a poor credit score to a fair one (630 or 689) can also result in the possibility of a lower cost loan with an interest rate that is lower.
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Another option is to settle all small debts. This reduces the credit utilization rate which is 30 percent of your credit score. And it can also improve your overall score, that lenders use to determine the ability of you to repay an loan. The lower your DTI ratio is, the more likely an institution will be able to consider approving your loan application.
2. Consider the possibility of a co-signer, secured, or joint loan
Some are more straightforward to get, such as co-signed, secured or joint loan.
In a, you make use of collateral like a vehicle or savings accounts to help to secure the loan This means that lenders may be more likely to approve you or provide an interest rate that is lower. But if you fail to pay back the loan you forfeit the collateral.
with a better credit score or income can boost your chances of approval. However, note that co-signers assume equal responsibility for the loan regardless of the fact that they don’t have access to the money. If you don’t pay your loan on time or fail to pay back the loan your co-signer’s credit score could be affected.
are similar to co-signed loans However, the co-borrower has equal access to the funds.
>> COMPARE:
3. Do some research and get pre-qualified
To find the most affordable rate for your debt consolidation loan, you’ll want to compare interest rates and terms from different lenders. The most efficient way to do this is via . You can pre-qualify with most online lenders to view estimated interest rates as well as loan amounts. This is a gentle credit checkthat doesn’t harm your credit score.
Also look for consumer-friendly features such as direct payments to creditors that is, the lender will transfer the loan money to your creditors which makes the process simplerand removing any incentive to make use of the funds to pay for other things.
Want to consolidate your debt? See if you pre-qualify for the credit consolidation loan.
Answer a few simple questions to receive personalized results by our loan partners -and without impact on your credit score.
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4. Apply for the debt consolidation loan
After you’ve selected a lender, you’ll need to make an application to get the loan. This is usually done online and you’ll be asked to supply personal information, including your Social Security number, and documents that prove your identity, income, and work.
The approval time can differ depending on the lender. You’ll typically receive your funds within a week, but many online lenders offer same- and next-day funding.
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5. Reduce debt and keep up with loan payments
Once you receive the funds in your account, use the funds to settle your obligations. If the funds are being transferred to your creditors on behalf of you, make sure to confirm with each creditor that your debt was successful in being paid.
The next step is to create a strategy to , which may include creating an budget that prioritizes your new monthly payment while keeping an eye on any refinancing possibilities.
The majority of lenders charge late fees for payments that are not made and then report them to credit bureaus, which can affect your credit score therefore, you should consider setting automatic payments in order to avoid falling in debt.
Where to get an credit consolidation loan for people with bad credit
Credit unions
are not-for-profit financial organizations that can offer flexible terms and lower rates than online lenders.
Federal credit unions limit annual percentage rates for personal loans at 18%..
Some credit unions won’t let you to be pre-qualified for the loan; applying requires a hard credit check and can affect your credit score, making it more difficult to compare.
It is also required to become an active members of the institution before you can apply for the loan and this could involve living or working in the same area as you and paying a minimal membership fee. The local credit union is a good option to begin, however national credit unions also offer loans for debt relief loans.
Online lender
are more convenient and frequently provide fasting funding, but they might charge higher fees for bad-credit borrowers as credit unions do.
There are also online lenders who charge fees that cover the costs of processing your loan. The fee is typically taken out of the loan funds, which means you might need to apply for more of a loan to receive the total amount you require.
is one of the best online lenders to get a bad credit loan. If you are approved for an installment loan and then have Upgrade transfer the money direct to creditors, then you may qualify for an additional rate discount of between 1 and 5 percentage points.
Accepts applications from borrowers with bad credit and will evaluate alternative data on your application, like college major and work history that could increase your chances of getting approved and getting a low rate.
>> COMPARE:
Individual loans through our partner companies
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5.0 NerdWallet’s ratings are compiled by our editorial staff. The scoring formula is based on factors we consider to be consumer-friendly, including impact to credit score, rates and fees customers’ experience, and responsible lending practices.
5.0 NerdWallet’s ratings are determined by our editorial team. The scoring formula takes into account the factors we believe to be friendly to consumers, such as the impact on credit score, fees and rates, customer experience and ethical lending practices.
APR 7.99-29.99%
Amount of loan: $5,000 – $50,000
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5.0 NerdWallet’s ratings are determined by our editorial staff. The scoring formula takes into account the factors we believe to be a good choice for consumers, such as the impact on credit score rates and fees, the customer experience and responsible lending practices.
APR 7.99-23.43%
Loan amount $5,000 – $100,000
on SoFi
on the Best Egg
Best Egg!
4.5 NerdWallet’s ratings are compiled by our editorial team. The scoring formula considers aspects we believe are beneficial to the consumer, such as impact on credit score, fees and rates as well as the customer’s experience and ethical lending practices.
4.5 NerdWallet’s ratings are determined by our editorial staff. The scoring formula considers the factors we believe to be beneficial to consumers, including the impact on credit score, fees and rates, customer experience and responsible lending practices.
APR 8.99-35.99%
Loan amount $2,000 – $50,000
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5.0 NerdWallet’s ratings are compiled by our editorial staff. The scoring formula takes into account aspects we consider to be consumer-friendly, including impact to credit score, fees and rates, customer experience and ethical lending practices.
APR Rates are based on AutoPay. 6.99-23.99%
The loan amount is $5,000 to $100,000.
on LightStream
on SoFi
SoFi
5.0 NerdWallet’s ratings are compiled by our editorial staff. The scoring formula takes into account the factors we believe to be friendly to consumers, such as the impact on credit score, rates and fees customers’ experience, and responsible lending practices.
5.0 NerdWallet’s ratings are determined by our editorial team. The scoring formula is based on aspects we consider to be consumer-friendly, including the impact on credit score, rates and fees, customer service and ethical lending practices.
APR 7.99-23.43%
The loan amount is $5,000 to $100,000.
on SoFi
on Universal Credit
Universal Credit
4.5 NerdWallet’s ratings are determined by our editorial staff. The scoring formula considers the factors we believe to be beneficial to consumers, including the impact on credit score rate and fees as well as the customer’s experience and ethical lending practices.
4.5 NerdWallet’s ratings are compiled by our editorial staff. The scoring formula takes into account the factors we believe to be consumer-friendly, including impact to credit score, rates and fees customers’ experience, and ethical lending practices.
APR 11.69-35.93%
Amount of loan: $1,000 – $50,000
on Universal Credit
on LendingClub
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5.0 NerdWallet’s ratings are compiled by our editorial staff. The scoring algorithm takes into consideration aspects we believe are consumer-friendly, including impact to credit score, rates and fees as well as the customer’s experience and ethical lending practices.
5.0 NerdWallet’s ratings are compiled by our editorial team. The scoring formula takes into account aspects we believe are consumer-friendly, including impact to credit score, rates and fees customers’ experience, and responsible lending practices.
APR 8.3-36.0%
The amount of the loan is $1,000.
on LendingClub
on Upstart
Upstart
4.5 NerdWallet’s ratings are compiled by our editorial team. The scoring formula considers aspects we consider to be consumer-friendly, including impact on credit score, rates and fees customers’ experience, and responsible lending practices.
4.5 NerdWallet’s ratings were determined by our editorial team. The scoring algorithm takes into consideration aspects we believe are beneficial to the consumer, including impact on credit score, rates and fees as well as the customer’s experience and ethical lending practices.
APR 6.5-35.99 Percent
The amount of the loan is $1,000.
on Upstart
Debt consolidation loan alternatives
If you’re in debt and consolidation loans aren’t the right choice for you Here are some alternatives.
Other debt payoff methods
The debt snowball and debt techniques like avalanches are well-known strategies to pay off debts without consolidating.
The uses early wins to keep you on track to becoming debt-free. In this method, debts are ordered starting with the lowest balance and ending with the highest. Once the smallest debt is paid off, the monthly payment is applied to the next-smallest balance until that’s completely paid off. Then, you continue to make payments towards each debt until you’re debt-free.
The follows a similar strategy, but it starts with your highest-interest debt. Then when that’s paid off, you tackle the second-highest-interest debt and so forth until all debts are paid. This strategy can save you money and ultimately time however it doesn’t provide the immediate wins as the snowball strategy.
Debt management plan
A debt management program from a nonprofit credit counseling agency will help you lower your interest rate and help you pay off debt more quickly. It’s an option if you have debt on credit cards and you are able to stick to a repayment plan for several years while not using credit cards.
>> MORE:
Bankruptcy
Discharging your debts in bankruptcy could be an option in the event that you’re overwhelmed with debt and need five years or longer to pay it off through consolidation. The bankruptcy process eliminates the majority of debt that are not secured, such as medical and credit card debts.
While your credit score may initially suffer a dip, it should begin to improve within one year of declaring bankruptcy.
>> MORE:
Most frequently asked questions. Can I apply for debt consolidation with poor credit?
You may be eligible to get a consolidation loan even having bad credit as some debt consolidation lenders specifically cater to borrowers with low credit scores.
What can I do to consolidate all my debts using bad credit?
A consolidation of multiple loans — such as credit cards, medical bills or payday loans — into one monthly installment. Getting a consolidating debt loan with poor credit may require some research however it is possible.
Where can I find an installment loan with bad credit?
tend to look more favorably on bad-credit loan applicants. They also provide loans for debt consolidation loans specifically designed for those who have bad credit.
Can I get debt consolidation if I have bad credit?
You may be eligible to get a consolidation loan even having bad credit as certain lenders who specialize in debt consolidation are geared towards borrowers with poor credit scores.
How do I consolidate all my debts using bad credit?
A consolidation of multiple debts , such as medical bills, credit cards or payday loans — into one monthly payment. A credit consolidation loan with bad credit may be a bit difficult however it is possible.
Where can I get an installment loan with bad credit?
tend to give more consideration for bad credit loan applicants. They also provide debt consolidation loans specifically for borrowers with poor credit.
About the author: Jackie Veling covers personal loans for NerdWallet.
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