Debt Consolidation Loan With Bad Credit

Loan Guides      Personal Loans      Debt Consolidation Loan With Bad Credit

Whether you’re close to getting out of debt, or still have work to do, a debt consolidation loan can be a great way to streamline payments while also securing a lower interest rate. But what if your credit is poor? What good would it do to consolidate if you end up paying more in the long run? In this guide, we’ll take a look at how to get the best consolidation loan to streamline your finances.
 

 

We’ll Cover

  • What is considered a debt consolidation loan with bad credit?
  • What does debt consolidation loan with bad credit cover?
  • Secured vs. unsecured loans
  • Benefits and drawbacks of debt consolidation loans
  • How to improve your interest rate with bad credit
  • How to apply
  • Checklist
  • FAQ
  • Summary

What is Considered a Debt Consolidation Loan With Bad Credit?

Generally, anything under 580 is considered a poor credit score and, naturally, an improved score will make it easier to get a loan at a better rate. Consolidation loans are typically personal loans where you pay one lender with one monthly payment. There are not different products based on your score, but the terms and rates will range considerably from lender to lender. Consolidation loans can be secured or unsecured.

Credit Class Score Average APR
Excellent 720-850 4.52%-20.57
Good 670-719 6.6%-28.33%
Fair 580-669 7.05%-30.3%
Poor 580 or lower 15.05%-36.00%

What Does Debt Consolidation Loan With Bad Credit Cover?

They generally cover most types of unsecured debt, including consumer debt and medical bills. There are consolidation programs for student loans, but most people tend to focus on debts with a high interest rate.

Secured vs. unsecured consolidation loans
Most are unsecured, which means that borrowers do not have to surrender their assets if they default. The issue is, they’ll typically need a good score for the interest rate to make sense to the lender, so it may be in your best interest to consider a secured loan. If you are comfortable including assets (such as your car) as collateral, it may be the best way to get a great rate.

Secured vs. Unsecured Consolidation Loans

Most are unsecured, which means that borrowers do not have to surrender their assets if they default. The issue is, they’ll typically need a good score for the interest rate to make sense to the lender, so it may be in your best interest to consider a secured loan. If you are comfortable including assets (such as your car) as collateral, it may be the best way to get a great rate.

Benefits of Consolidation Loans

The primary goal of a consolidated loan would be an improved overall APR. Consumer credit cards, for example, carry extremely high rates, so consolidation can be a great way to free yourself from that type of debt. In addition, streamlining into one monthly payment can help you focus your efforts to get out of debt faster.

Drawbacks of Consolidation Loans

The main downside, especially for those with bad credit, is that the rates aren’t always going to be lower for a consolidated loan. You’ll need to weigh the impact of combining your various debts to see if you’ll save money in the long run.

As you decide whether this type of loan is right for you, consider ways to position yourself to get a better score or credit standing, thus getting a better rate. Here are some suggestions to help you to secure a better rate.

How to Improve Your Interest Rate With Bad Credit

  • Find a co-signer with good credit to offset a high interest rate.
  • Lower your debt-to-income ratio prior to applying if you can. If you have bad credit, but your debt is minimal, it will be easier to get approved.
  • Check your credit report for bad information. There may be an incorrectly reported missed payment or other discrepancies you may not be aware of.
  • Consider a secured loan using assets as collateral.

As you take these steps, compare several lenders to find a loan that is right for you.

 

 

How to Apply

Before you fill out the application, review your credit report for discrepancies if you haven’t already done so. Do not take out any additional loans or credit cards right around the time of applying, as this will increase your debt-to-income ratio making it harder for you to be approved.

Most importantly, be sure to apply with a reputable lender. The sad reality about debt consolidators is that there are many predatory firms with ridiculous adjustable interest rates and bad service.

Here is the info you’ll need to complete your application:

  • Phone number and address
  • Employer and employment status
  • Financial documentation including bank account balances and details on assets like your retirement, home equity, and even vehicles (in the case of a secured loan).

If you still have questions and concerns, we are here to help. Here are some frequently asked questions about consolidated loans.

Q: Will debt consolidation hurt my credit score?
A: No. As long as you make payments on time (within 30 days) and do not continue to rack up charges on your credit cards, your credit score should not be negatively affected. Consolidation will remain on your credit report for seven years, however, which may make it harder to apply for future loans.

Q: Is there a difference between debt consolidation and debt settlement?
A: Yes, a consolidated loan addresses all of the debt and will not negatively affect your credit score as long as terms are met. Debt settlement is renegotiating or hiring a negotiator to lower a loan or debt to less than what was originally owed. Among other drawbacks, debt settlement negatively affects your credit score. You will also be subject to fees and even tax penalties that are not applicable to consolidation.

Q: Is an adjustable-rate loan a bad idea?
A: As long as you plan to pay off all or most of the loan before the introductory period has expired, you can often benefit from a much lower APR. The risk is in the uncertainty of what that rate will turn into. A fixed rate may be somewhat higher, but you know what you’re signing up for.

Summary

Being in debt can be scary. And having a low credit score on top of that can make it feel like there is no way out. In addition, there are many less-than-reputable lenders that prey upon people in difficult financial situations. But you have options, and we’re here to help you every step of the way to get you the right loan. We have resources and professionals on call to help you proceed with confidence.