How to Get a Debt Consolidation Loan With Poor Credit
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How to Receive a Consolidation Loan for Debts with Poor Credit
A debt consolidation loan with bad credit might require building your credit or even a co-signer.
Last updated on Jan 24 2023.
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If you’re looking for a loan if you’ve got poor credit might need some research, but there are options which include loans from credit unions as well as online lenders.
Certain lenders cater to those who have bad credit (a credit score of less than 630) and take into account other factors that affect score, such as income, education and employment history.
This article will help you determine if you should consider a credit consolidation loan is a good idea to tackle your debts and how you can get one.
How do you get a consolidation loan?
The debt consolidation loan is an individual loan that you can use to consolidate and pay off multiple debts at one time (think of medical bills or other unsecured personal loans which means you only have one monthly installment.
In the ideal scenario, this payment will have a lower interest rate than the debt you currently have that can save you money and allow you to get out of debt faster.
Is a debt consolidation loan a good idea?
If you’re having trouble paying off your debt and are eligible for a low enough interest rate for the loan, debt consolidation is generally a good idea.
Here are some of the benefits:
It saves the cost of interest. The most significant advantage of consolidating debt is amount you save on interest by consolidating debt at a lower rate. Just a few percentage points makes a big difference in the total amount of interest saved. Check out our calculator to determine your potential savings.
It is possible to pay off debt faster. When you consolidate at a lower rate of interest and you are able to pay off debt quicker by putting the savings into the remaining balance. You can also select a short repayment term on a debt consolidation loan so long as you are able to manage the monthly payments.
It makes the process easier. Instead of keeping track of multiple debts, by taking out debt consolidation loan, you’ll have only one installment to pay. Debt consolidation loans also come with fixed terms. This means you’ll know the date of your repayment, which can help keep you focused.
It can help build credit. Although taking out a debt consolidation loan could temporarily knock a few points off of your credit rating, the long-term result should be positive once you begin to get rid of debt.
How to obtain an debt consolidation loan with bad credit
1. Check your credit report
Are mistakes in your credit report the reason behind your low credit score? Check for errors such as wrong accounts, incorrectly reported payments , or incorrect credit limits.
You can access your credit report weekly for free at any of the three major credit bureausthree bureaus namely Experian, Equifax and TransUnion — with .
A small increase within your credit rating can be a good indication be a good candidate for an consolidating debt loan. Going from a bad credit score to a fair one (630 to 689) can also result in the possibility of a lower cost loan with the possibility of a lower interest.
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Another option is to pay off any small debts. This lowers your credit utilization which is 30% on your score. And it can also improve your overall score, which lenders use to evaluate your ability to pay back a loan. The lower your DTI ratio, the more likely a lender may approve your loan application.
2. Consider the possibility of a co-signer, secured, or joint loan
Certain loans are easier to qualify for, including a secured, co-signed or joint loan.
In a, you make use of collateral such as a car or savings account to help to secure the loan and lenders are more likely to approve or extend an interest rate that is lower. But if you fail to pay back the loan then you’ll lose the collateral.
with a higher credit score or a higher income than you can also boost your chances of approval. But, keep in mind that a co-signer takes on equal responsibility for the loan regardless of the fact that they aren’t able to access the money. If you fail to pay or fail to pay back the loan the co-signer’s credit score could be affected.
Similar to co-signed loans, but the co-borrower is granted equal access to the funds.
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3. Check around and make sure you are pre-qualified
For the best price on the debt consolidation loan You’ll need to compare interest rates and terms from multiple lenders, and the easiest method is to use . You can pre-qualify with most online lenders to see estimated rate and loan amounts. This involves a soft credit test, which won’t affect your credit score.
Be sure to look for features that are friendly to consumers like direct payment to your creditors that is, the lender sends the loan funds to your creditor making the process easierand also removing the temptation to use the cash to purchase something else.
Do you want to consolidate debt? Check if you are eligible for the debt consolidation loan.
Just answer a few questions and you’ll receive a personalized report by our loan partners -without affecting your credit score.
The amount of the loan
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4. Request the consolidation loan
Once you’ve chosen a lender, you’ll need to make an application for the loan. This process is typically online, and you’ll be asked to supply personal information including details about your Social Security number, and documents that verify the identity of you, your income, and employment.
Approval time can vary by lender. You’ll usually receive the funds within a week, but numerous online lenders offer same- and next-day funding.
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5. Reduce the debt and make loan payments
When you have the money in your account, make use of the funds to settle your debts. If the money is being transferred to your creditors on behalf of you, make sure to confirm every creditor you have with that your debt has been effectively paid for.
The next step is to create a strategy to , which may include establishing the budget to prioritize the new monthly payment, and keeping an eye out for any refinancing possibilities.
Many lenders charge a late fee for late payments and report them to credit bureaus, which can affect your credit score so consider setting up automatic payments to prevent falling in debt.
Where to get a debt consolidation loan for people with bad credit
Credit unions
They are non-profit financial institutions that can offer flexible terms and lower rates than online lenders.
Federal credit unions have capped annual percentage rates for personal loans at 18%.
Some credit unions won’t let you to be pre-qualified for an loan The application process will require a credit check and can affect your credit score and make it more difficult to compare.
You also need to become a part of the credit union in order to apply for the loan and this could involve living or working nearby and paying a modest annual membership fee. A local credit union is a good option to begin, however national credit unions also provide the debt-consolidation loans.
Online lending
are more convenient and often offer quick funding, however they might charge higher fees for borrowers with bad credit than credit unions do.
There are also online lenders who charge fees for the cost of the processing of your loan. The cost is usually subtracted from the loan funds, which means you may need to ask for more of a loan to receive the total amount you require.
is one of the best online lenders for a low-credit loan. If you take out an installment loan and Upgrade is able to transfer the funds directly to your creditors, you may get an additional rate discount of between 1 and 5 percent.
Accepts applications from borrowers with bad credit and will consider other data you have on your application, like college major and work history, which could boost your chances of getting approved and getting a low rate.
>> COMPARE:
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4.5 NerdWallet’s ratings are determined by our editorial staff. The scoring formula considers aspects we believe are beneficial to the consumer, including the impact on credit score, fees and rates customers’ experience, and ethical lending practices.
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Loan amount $1,000 – $50,000
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APR 8.3-36.0%
The amount of the loan is $1,000.
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Debt consolidation loan alternatives
If debt consolidation loans don’t fit your needs Here are some alternatives.
Other debt payoff methods
The debt snowball as well as the debt techniques like avalanches are well-known strategies for paying off debt without consolidating.
The strategy uses early victories to help you stay on track towards becoming debt-free. In this method, debts are arranged starting with the lowest balance and ending with the highest. When the debt with the lowest balance is paid off, the monthly payment is applied to the next-smallest balance until that’s paid off. Then, you continue to make payments towards each debt until you’re debt-free.
It’s a similar approach, 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 approach can save money and ultimately time however, it does not offer the instant wins of the snowball strategy.
Debt management plan
A debt management plan from an agency for credit counseling that is non-profit can help reduce the interest rate on your debt and pay off debt faster. It’s an option if you have debt on credit cards and if you’re able to adhere to a payment schedule for several years while not using the credit cards.
>> MORE:
Bankruptcy
Discharging your debts in bankruptcy is an option if you are overwhelmed by debt and need five years or longer to pay it off through consolidation. Bankruptcy wipes out most kinds of unsecure debt, such as credit cards and medical bills.
While your credit score may initially take a hit but it will begin to rebound within a year of declaring bankruptcy.
>> MORE:
Commonly asked questions: Can I get a debt consolidation loan with poor credit?
You are able to apply for a debt consolidation loan even if you have bad credit as certain debt consolidation lenders cater to borrowers with low credit scores.
What can I do to consolidate all my debt with bad credit?
A debt consolidation loan combines several unsecured debts — like medical bills, credit cards or payday loans — into one monthly installment. A debt consolidation loan with bad credit may require some research but it’s feasible.
How can I obtain a consolidation loan with poor credit?
tend to look more favorably for bad credit loan applicants. Also, they offer debt consolidation loans specifically for borrowers who have bad credit.
Can I get debt consolidation if I have bad credit?
You may be eligible for debt consolidation loan even when you’re not a credit score holder, and some lenders for debt consolidation specifically cater to borrowers with low credit scores.
How do I consolidate all my debt with poor credit?
A consolidation of multiple debts — like credit cards, medical bills as well as payday loans — into one monthly payment. The process of obtaining a consolidating debt loan with poor credit may be difficult but it’s possible.
How can I obtain a consolidation loan with bad credit?
tend to look more favorably for bad credit loan applicants. They also provide debt consolidation loans specifically targeted at borrowers who have bad credit.
About the author: Jackie Veling covers personal loans for NerdWallet.
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