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Best Debt Consolidation Loans For Bad Credit

Exploring debt consolidation alternatives for people with bad credit can be a lifeline to alleviate your debt burden.

Written by
Matthew Levy
Last Update on Sep 15, 2023

Selecting an Optimal Debt Consolidation Loan for Bad Credit

Achieve Loans

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Achieve is known for its straightforward and transparent loan processes and stands out for borrowers seeking debt consolidation – especially those with bad credit. They provide tailor-made solutions coupled with an intuitive online platform, which makes them a preferred choice for many.

Pros:

  • Transparent loan terms
  • Flexible repayment options
  • Dedicated customer service

Cons:

  • Origination fees of 1.99% to 4.99%
  • Higher APR for those with lower credit scores
  • Limited loan amounts compared to larger lenders
Additional Details

Fees and Costs:
Achieve has a transparent fee structure, but borrowers should be aware and inquire about any origination fees that could add to overall loan costs. In some cases, origination fees are as high as 4.99%. Read the fine print and ensure there are no other hidden charges as well.
Loan Parameters:
Achieve’s loan offerings can range from low to mid-tier amounts, which is suitable for individuals looking to consolidate smaller debts. Their APR varies based on creditworthiness, but they do offer competitive rates, especially for those with bad credit. Ensure the loan amount and terms match with your debt repayment needs.
Additional Features:
A standout feature for Achieve is its direct payment to creditors, which helps reduce the stress on borrowers to manually settle multiple debts. They also offer free credit score monitoring for their clients, a value-added service to help track credit health.

Discover Loans

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Discover is more than a credit card company, as they have also made significant progress in the personal loan market. They have a reputation for transparency and offer competitive interest rates with no origination fees. They are a solid choice for those looking at debt consolidation, even for individuals with bad credit.

Pros:

  • No origination fees
  • Fixed interest rates for predictability
  • Flexible repayment terms

Cons:

  • Requires a relatively higher credit score for approval
  • Does not offer direct payment to creditors
  • Might not be suitable for considerable debt consolidations
Additional Details

Fees and Costs:
One of the standout features of Discover is the absence of origination fees. The loan’s cost is transparent from the outset of approval. However, late fees might apply, so ensure you can make all of your payments on time.
Loan Parameters:
Discover offers loan amounts catering to most debt consolidation needs with a competitive APR, especially for those with decent credit scores. Their loan term flexibility ensures borrowers can choose a duration that matches their ability to repay.
Additional Features:
Discover really shines in its customer education and support. Their website has plenty of resources, including loan calculators and financial education articles. While they do not provide direct payment to creditors, they have efficient online management tools that can aid borrowers in tracking and managing their debt.

Upgrade

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Upgrade has made progress in the online lending space, providing personalized loan options for a broad spectrum of credit scores. Their hybrid model – part traditional loan, part credit-building opportunity – is what sets them apart. Even borrowers with subpar credit can potentially access loans while working to improve their credit score.

Pros:

  • Hybrid model supports credit building
  • Competitive interest rates for good credit
  • Unsecured loans available
  • Origination fees can be as high as 9.99%

Cons:

  • Higher rates for those with bad credit
  • Borrowing limits might not be as high as other competitors
Additional Details

Fees and Costs:
Upgrade does charge an origination fee, ranging between 1.85% to 9.99% of the loan amount. Factor this fee into the loan’s total cost to get your true cost before entering into an agreement.
Loan Parameters:
Upgrade offers loans suitable for many debt consolidation cases, with an APR that is competitive but will vary with your creditworthiness. Loan terms can cater to both shorter-term and longer-term needs.
Additional Features:
Upgrade’s credit health tools are a plus. They provide insights to help borrowers understand how to improve their credit scores over time.

Universal Credit

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Universal Credit offers a simplified loan experience for those looking to consolidate their debts. Their user-friendly platform with their flexible loan options make them a top choice for borrowers of all credit backgrounds.

Pros:

  • User-friendly online application
  • Fast funding
  • Multiple rate discounts

Cons:

  • Origination fee of 5.25% to 9.99%
  • Late payment fees and non-sufficient funds fees
  • Limited repayment term options
Additional Details

Fees and Costs:
Universal Credit’s fee structure is transparent, so understanding cost implications should be apparent from the outset. There are origination fees, late fees, and NSF fees, however, and APR ranges from 8.49% to 35.99%.
Loan Parameters:
A range of loan amounts are available, and Universal Credit’s APR is competitive for various debt consolidation needs. The rate offered will depend on your credit score. There is slightly less flexibility with repayment terms, offering from 2 to 7 years term duration.
Additional Features:
Universal Credit borrowers have free access to their credit score through Upgrade, which allows them to produce a VantageScore. They also have a credit score simulator, credit monitoring, and customized credit-building recommendations.

Happy Money

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Happy Money goes beyond just providing a loan. They focus on helping borrowers improve their relationship with money. They’re known for offering financial solutions to help pay off debt while also building on their positive financial behaviors.

Pros:

  • Comprehensive financial wellness approach
  • No hidden fees
  • Offers educational resources and tools

Cons:

  • Potentially higher APR for lower credit scores
  • Limited loan amount range
  • Might not be suitable for all debt amounts
  • Origination fees up to 5%
Additional Details

Fees and Costs:
Happy Money is extremely transparent with its offerings. There are no hidden fees, including any late or prepayment fees, refreshing for the lending space. However, expect an origination fee of up to 5% on the total loan amount.
Loan Parameters:
While Happy Money has competitive APRs, rates do vary based on your credit profile. The loan terms provided are standard, catering to most debt consolidation needs.
Additional Features:
Happy Money’s emphasis on financial education and wellness is evident in its offering of resources, tools, and workshops designed to empower borrowers.

Best Egg

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Best Egg has rapidly become a favored choice for personal loans, especially for debt consolidation. They have a swift approval process with competitive rates, offering borrowers a seamless experience. Their platform is particularly favored by those with good to excellent credit scores, however.

Pros:

  • Fast approval and funding process
  • Competitive interest rates
  • Large loan amounts available

Cons:

  • Origination fees from 0.99% to 8.99%
  • Higher rates for those with subpar credit
  • Not all applications will qualify for the lowest rates
Additional Details

Fees and Costs:
Best Egg’s origination fees range from 0.99% to 8.99%. While these add to the loan’s cost, the competitive interest rates can offset this, making it a valuable option for many borrowers.
Loan Parameters:
Best Egg offers a broad range of loan amounts, and their APR is always competitive, although that will largely depend on the applicant’s creditworthiness. Read the loan terms and ensure they match your debt repayment needs.
Additional Features:
Best Egg does more than lending. They offer a suite of online tools and resources to help borrowers manage their debts and gain insights into their financial behaviors.

LendingClub

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LendingClub stands out as a peer-to-peer lender, connecting borrowers to individual investors willing to fund their loans. This is unique and can provide more flexible lending options, especially for those struggling with approval from traditional financing routes.

Pros:

  • Peer-to-peer model can provide more flexibility.
  • No prepayment penalties
  • Option to directly pay off creditors

Cons:

  • Origination fee varies between 3 to 8%
  • Interest rates might be higher for those with bad credit
  • Loan approval can take longer due to the P2P model
Additional Details

Fees and Costs:
LendingClub charges an origination fee from 3% to 8% of the loan amount. This is deducted from the loan proceeds, so factor this in when determining how much you need to borrow.
Loan Parameters:
LendingClub’s loans have terms to accommodate most borrowers’ needs. However, the APR offered will depend on the creditworthiness of the applicant. Since it’s a P2P platform, it may take longer for loan funding, so patience will be required.
Additional Features:
One standout feature is the option for direct payment to creditors, simplifying the debt consolidation process. There are also tools available for credit education and monitoring.

LightStream

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LightStream, a division of Truist, is recognized for its transparent lending practices and competitive rates. They cater to borrowers with good to excellent credit scores, providing tailored loans with minimal fees.

Pros:

  • Competitive interest rates for good credit
  • No fees, including no origination or late fees
  • Rate Beat program guarantees the best interest rates

Cons:

  • Requires a strong credit profile for approval
  • Doesn’t cater as well to those with poor credit
  • Strict loan conditions may be a barrier
Additional Details

Fees and Costs:
LightStream is one of the better lenders for no-fee lending. They don’t charge origination fees, application fees, or late fees.
Loan Parameters:
There is a wide range of loan amounts, with APR heavily dependent on credit score. Terms can cater to a variety of debt consolidation requirements.
Additional Features:
Their Rate Beat program is an exceptional feature. LightStream will beat any qualifying interest rate from another lender by 0.1%. They also guarantee loan satisfaction, offering borrowers some compensation if they aren’t satisfied with the loan process.

SoFi

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SoFi (Social Finance) has quickly established itself as a leading fintech company offering a range of financial products, including debt consolidation loans. Their modern approach, combining technology and financial education, makes them an attractive choice for many borrowers. They have a commitment to no hidden fees and often provide competitive rates.

Pros:

  • Competitive interest rates
  • Optional origination fees for lower rates
  • Member benefits include career coaching

Cons:

  • Might not be best for those with poor credit
  • Requires a higher credit score for most competitive rates
  • Not all applicants will receive the advertised lowest rate
Additional Details

Fees and Costs:
SoFi has a transparent fee structure. Borrowers can opt for no origination fees, late fees, or prepayment penalties with a straightforward lending process. You can opt for an origination fee in exchange for a lower interest rate. As always, read your terms carefully.
Loan Parameters:
SoFi’s loans come in a variety of amounts and terms. The APR will depend on the credit profile of the borrower. Remember to check your loan parameters against the amount and term required for your debt consolidation.
Additional Features:
One of SoFi’s standout features is its range of member benefits. Benefits include career coaching, financial advice, and even networking events. They don’t focus is on more than providing a loan; they want to help members achieve overall financial wellness. They also offer unemployment protection – if a borrower loses their job through no fault of their own, SoFi may allow them to pause their payments and even assist in job searching.

Features of Debt Consolidation Loans for Bad Credit

Figuring out debt consolidation with bad credit is intimidating. However, if you understand certain terms and lenders, you can feel empowered to make informed decisions and secure better deals. 

Specialized Lenders: Many financial institutions specifically cater to individuals with less-than-perfect credit scores. They understand that past financial mistakes don’t define a person in their entirety and have developed specialized loan products, often with tailored terms, to assist in consolidating debts effectively. 

Higher Interest Rates: The reality of securing a debt consolidation loan with bad credit is the possibility of higher interest rates. Lenders have to be compensated for the higher risk of someone with lower credit, and will charge higher rates to ensure they can make back their investment, even if the borrower defaults. 

Key Considerations Before Consolidation

Opting for debt consolidation, especially for those with poor credit, means you will need to do thorough due diligence. Here are some things to understand prior to any agreement:

  1. Interest Rates: While bad credit usually means higher rates, you still shouldn’t settle for the first offer. Different lenders have different risk appetites and may offer slightly better rates. Spend time researching, and aim to get the best rate your credit status can get – it leads to big savings over the life of a loan. 
  2. Hidden Costs: A loan agreement can have concealed costs buried int he fine print. Look for things like origination fees, late payment penalties, service charges, and prepayment penalties. Read any agreement meticulously and question anything that is unclear. 

Remember that these are just general recommendations, always consult a financial expert for specific advice or guidance. 

Tips for Evaluating Consolidation Loans

Debt consolidation for those with bad credit needs a systematic approach to assess and select one that meets your financial needs. Here are some essential tips to consider:

  1. Obtain Multiple Estimates: Every lender offers different loan terms, rates, and features. Before signing up for a loan, gather multiple estimates to cast a wider net on what is available to you. This will allow for a more comprehensive understanding of what is available in the market, to provide leverage during negotiations, and find potential savings opportunities. Even a slight difference in interest rates can significantly impact a loan’s total cost. Also, prioritize lenders who offer soft credit inquiry prequalifications to ensure your credit score remains unaffected. 
  2. Deep Dive into Details: A loan may have underlying costs and conditions, so scrutinize the fine print for any additional charges. Look out for clauses related to origination or service fees, prepayment penalties, or conditions under which the interest rate might change. 
  3. Crunch the Numbers: Multiple estimates will help, but use online loan calculators to determine the total cost of the loan, looking at monthly payments, overall interest, and any associated fees. Compare these numbers against your current debt payments – are the savings substantial? Will the new monthly payment fit more comfortably with your budget? These things will help you tackle your debt responsibly. 

Pros and Cons of Debt Consolidation

Debt consolidation can offer a streamlined approach to managing multiple debts, but like any financial decision, there are pros and cons associated with doing so. Here are a few:

ProsCons
  • One Payment: Streamlined debt management with a single monthly payment
  • Credit Enhancement: Utilizing an installment loan can lift your credit score
  • Risk of More Debt: Without discipline, there’s potential to accumulate more debt post-consolidation
  • No Guarantee of Reduced Rates: Interest rates can be higher on a consolidated loan

Where to Source Debt Consolidation Loans with Poor Credit

Even individuals with poor credit have various avenues to explore for consolidating their debts in today’s digital age. Understanding where to look can make all the difference. 

Online Platforms: These are increasingly becoming the go-to for many, particularly for those with bad credit. Digital lenders often have more flexible approval criteria compared to traditional financial institutions. They use sophisticated algorithms to consider more than just your credit score, looking at your entire financial picture. This can sometimes result in a better chance of approval. However, a word of caution: due to the perceived higher risk, online platforms may charge significantly higher interest rates or have hidden fees. 

Credit Unions: A credit union is a nonprofit organization where members can borrow from pooled deposits at generally low-interest rates. They are traditionally more lenient when it comes to loan approvals compared to conventional banks. Since they focus on serving their community, they might be more understanding and offer more favorable terms, especially if you have a longstanding relationship or membership. That is one drawback, though, as you often need a membership, which might have its own set of criteria or costs. 

Take the time to research and compare different sources. It can drastically influence the terms and rates you receive and is well worth the effort. 

Guidelines for Securing a Consolidation Loan

Consolidating your debts can be life-changing and set you toward financial freedom. To have the best outcome, understand and follow an approach during the application purpose, something similar to this:

  1. Self-Review: Take the time to obtain and analyze your credit reports from major bureaus like Equifax, Experian, and TransUnion. This will give you a clear picture of your current financial standing and also allow you to rectify any inaccuracies that could negatively impact your application. 
  2. Target Suitable Lenders: Not all lenders will have the same criteria for qualification. Research them and identify those whose credit score requirements and loan offerings align with your current financial situation. This groundwork can enhance your chances for approval and save time in the long run.
  3. Pre-qualification: Many lenders have a pre-qualification process, giving you a peek at potential rates and terms you might receive. This is usually done with a soft credit inquiry, which will not affect your credit score. It’s a great tool to gauge where you stand before committing to a full application. 
  4. Final Application: Once ready, complete the formal application process. This will require detailed financial information and documentation, so ensure all details are accurate and current. You can be proactive in providing any additional information or clarifications that can help the approval process. 

These steps will help secure a debt consolidation loan by making it smoother and more predictable. 

Exploring Alternatives

Debt consolidation isn’t for everyone. A few other paths to consider are as follows:

  • Credit Enhancement: This is a strategic approach to increase your creditworthiness. A higher credit score can unlock better loan terms and interest rates. You can start by making timely bill payments, reducing outstanding debt, avoiding new debt, and disputing any inaccuracies on your credit reports. Over time, individuals can significantly improve their credit profit, positioning themselves better for future loan applications or refinancing. 
  • DIY Debt Payoff Strategies: There are several self-directed strategies to help manage and reduce debt. The “snowball method” involves focusing on the smallest debt you have first and paying it off, working up to the large ones, where the “avalanche method” targets the higher-interest debts initially and works your way down. Consistency is key here. Create a budge, set aside a designated amount for debt payments, and monitor your progress towards your goal. 
  • Engage Professionals: When your debt becomes unmanageable, professionals might be the best course of action. Credit counseling agencies exist and offer guidance on budgeting and debt management, and might even negotiate with creditors on your behalf. For severe cases, debt settlement companies or even bankruptcy attorneys can provide specialized assistance. Do your due diligence here, and understand any potential fees or implications. Professional help can be invaluable, but you must partner with reputable services. 

Frequently Asked Questions (FAQs)

What Distinguishes Debt Consolidation Loans From Other Types Of Loans?

Debt consolidation loans are specifically designed to merge multiple debt obligations like credit cards or personal loans into a single monthly payment. They often come with a more favorable interest rate and payment terms to make repayment more manageable for the lender.

Is There A Possibility My Interest Rate Will Be Higher With A Consolidation Loan?

Yes, especially if you have bad credit. Shop around, compare rates, and assess if the consolidation loan truly benefits you financially in the long run.

Can I Consolidate Both Federal And Private Student Loans?

While it is possible to consolidate these student loans, it’s typically not recommended. Consolidating federal loans into private ones means forfeiting federal benefits like income-driven repayment plans or even potential loan forgiveness.

Do I Need Collateral For A Debt Consolidation Loan?

Not always, as there are both secured and unsecured debt consolidation loans. Secured loans will typically come with lower interest rates but put your personal assets at risk of foreclosure.

How Does The Length Of A Debt Consolidation Loan Term Affect My Payments And Total Cost?

A longer-term loan will generally lower your monthly payments, but it also means you pay more interest over time. Shorter terms mean higher monthly payments, but less interest in the long run.

What Happens If I Default On A Debt Consolidation Loan?

The consequences of defaulting vary based on the loan’s terms, especially whether it is secured or unsecured. There could be late fees, increased interest rates, or the loss of your collateral if your loan is secured. Defaulting also negatively impacts your credit score.

After graduating with a Bachelor of Science in Economics from the University of Victoria in 2010, Matthew developed a passion for helping clients meet their financial freedom through strong, risk-adjusted portfolios. Matthew also undertook and completed his CFA® charter in 2015, a rigorous professional credential program promoting the highest standards of education, ethics, and professional excellence in the investment profession.