Debt Consolidation Loans to Pay Credit Card
No matter how disciplined you are with your budget, sometimes you can’t help but go on a bit of a splurge. And if you have credit readily available, you may find it harder to even think twice before spending what you haven’t earned. When things get out of control, you could be in for a lot of trouble. So, in this article, we take you through one of the common ways to put a stop to a worsening credit card problem, and that is through a debt consolidation loan.
Here you’ll learn everything you need to know about this loan type so you could decide whether you should apply for one or not.
But before you read the rest of the contents, here are the best credit card debt consolidation lenders available in the market:
- Best Rate
- Min. Credit Score
- Max Term
- Max Amount
LightStream
- 5.95%
- 660
- 7 years
- $100,000
Payoff
- 5.99%
- 640
- 5 years
- $35,000
SoFi
- 5.99%
- 680
- 7 years
- $100,000
- Best Rate
- Min. Credit Score
- Max Term
- Max Amount
Best Egg
- 5.99%
- 600
- 5 years
- $50,000
Upgrade
- 6.94%
- Not specified
- 5 years
- $50,000
SoFi
- 5.99%
- 680
- 7 years
- $100,000
- APR range
- Fees
- Terms
- Amounth
- Unemployment protection
Bank 1
- 6.95%–35.89%
- Up to 5% transfer fee
- 3–5 years
- $1,000–$40,000
- No
Bank 2
- 6.95%–35.89%
- Up to 5% transfer fee
- 3–5 years
- $1,000–$40,000
- No
Bank 3
- 6.95%–35.89%
- Up to 5% transfer fee
- 3–5 years
- $1,000–$40,000
- No
Table of Contents
How Debt Consolidation Works?
A debt consolidation loan is a type of credit offered by banks or credit institutions that helps you streamline credit card bills, auto loan payments, personal loan payments, and other debts into a single loan with a single monthly payment.
It works with you applying for another loan and using the fresh funds to pay off all you owe. In turn, you’ll have a new financial commitment with different terms and a monthly installment that is usually lower than your prior collective payments to all your debt sources.
If you’re applying for a consolidation loan for credit card bills, then it’s much the same product, but its focus is on accomplishing repayments towards all your credit card debt.
A form of identification can be your passport, driver’s license, etc. Sometimes, your Social Security number is enough.
Can I Get a Loan to Consolidate Credit Card Debt?
The quick answer is yes. You most certainly can. Consolidation loans for credit card debt are available to you as long as you meet the qualifying requirements (this is expounded further in the next few paragraphs). But, essentially, such a credit type is within your reach if you possess a good credit score and credit history.
In some instances, when you fail to satisfy those two criteria, some lenders offer you the option to ensure repayments through a co-applicant or collateral.
Since most personal loans are unsecured (meaning that there’s no other guarantee of you paying back the loan other than your creditworthiness), a co-applicant or collateral will give the lender confidence in letting you borrow their money.
What do you need to know about personal loans?
Before filling out an application form, it is vital to understand a few fundamental aspects of a personal loan to determine the best one among several choices. Here are a few things you should know:
- Interest Rate is a percentage of your loan’s principal that lenders set as a fee for borrowing their money. Lenders are free to set the rates they would charge loans, but competition, Federal Reserve policies, and market levels greatly influence their decision.
- Principal: The principal is the entire amount you borrowed from the lender, which you are expected to pay back. The principal excludes the interest.
- APR or “annual percentage rate” is the overall cost of borrowing from your lender. It includes interest rates, origination fees, and other charges, which is why it’s a higher figure than the advertised interest rate. It is the best metric in deciding among your options because of the reasons stated above.
- Repayment Term is the duration agreement of which you are expected to repay the entire borrowed sum and is usually expressed in either years or months. Some lenders would allow you to repay your personal loan for up to 12 years.
- Monthly Payment refers to the fixed amount of money you have to pay back to the lender to repay your borrowed funds, and the exact figure depends on the APR, principal, and the repayment terms of your loan.
- Other Fees – There are also other fees associated with the amount you borrowed. Some creditors charge an origination fee, which is 0.5% to 1% of the borrowed amount and is included in the APR. But fees like prepayment fees are charged against you if you decide to settle your liability early. It is important to know all the fees associated with your loan before finalizing the agreement with your lender.
Types of personal loans
Most borrowers think that personal loans fall under just one variety, but other types exist with features that may be more applicable to your financial situation. Here are the four general kinds of online personal loans:
- Unsecured loans are acquired based on the borrower’s creditworthiness, meaning that it doesn’t require a form of collateral to gain approval. Thus, lenders of this loan type charge higher interest rates to the borrower, and it can range from 5% to 36%.
- Secured loans, on the other hand, require a type of asset that can be collateralized, such as a car or savings. With collateral ensuring the loan’s repayment, lenders can charge cheaper rates, making this loan type suitable for borrowers with a low credit score.
- Cosigned loans exhibit the characteristics of both secured and unsecured loans because it doesn’t require collateral but need a form of guarantee through a “cosigner.” The cosigner will assume the responsibility of repaying the loan in case you are unable to do so.
- Payday Loans are short-term loans with repayment terms of at least two weeks to 45 days. In short, this type of loan is paid on your next payday. Payday loans have the highest interest rates among the personal loan types mentioned here because they often don’t need a credit check.
How much can you borrow?
The average amount you can borrow from a payday loan can range from $50 to $1,000, while an unsecured personal loan with an online direct lender can offer you from $2,000 to $50,000. Some lenders may even allow up to $100,000. But of course, the amount you are eligible to borrow depends on a few factors.
Lenders evaluate the amount and rate based on your income, current debt, and credit score. Sometimes a FICO score of at least 680 is preferred by lenders plus a debt-to-income ratio of 28% or 36% if using the back-end ratio, which includes all expenses.
However, this doesn’t mean that you don’t have any other alternative if you have a poor credit score. Some online lenders offer personal loans for borrowers with a 500 credit score, but it will come with unfavorable rates.
An option you can go for is a cosigned loan. This way, even if you don’t have the best credit score, but someone is willing to guarantee your loan’s repayment, then there is a good chance you can get approval with better terms.
Taking care of your Credit Score will allow you to borrow a higher amount of money from different lenders.
Personal Loans with low APR
As previously touched on, the APR represents the loan’s aggregate charges and is your best gauge to evaluate the most cost-effective personal loan option.
One of the lenders that provide the lowest APR is LightStream. It offers a 5.95% APR, a $100,000 max loan amount, and a term length of 2 to 7 years. While not rated by the Better Business Bureau, its parent company Truist Financial Corporation has an A+ rating.
However, to get approved for a loan, LightStream requires a minimum credit score of 660 plus several years of good credit history.
So, if it’s an online lender that is as competitive as what LightStream’s offers but isn’t as stringent on credit score and credit history, SoFi Finance Inc. is the choice. SoFi’s APR is only higher by 0.05% compared to LightStream. And the way they assess creditworthiness is through free cash flow or the remainder of your income after paying all expenses.
Personal loan guaranteed approval
Of course, there are also personal loans with guaranteed approval, and borrowers who seek this kind of credit would typically face no hassle in their application. Lenders of this loan type will allow you to borrow money regardless of your credit history or score and without collateral.
This is also called payday loans, fast cash, deferred deposits, low credit loans, or cash advances, and the standard range of the amount you can borrow is $350 to $1,500.
You can benefit from guaranteed personal loans if you happen to run short on a few cash and need to pay for something urgent.
Online Loans without Credit Score
When it comes to online personal loans without a specific credit score, the best option is with One Main Financial. This Indiana-based financial services company can allow you to borrow up to $20,000 with an APR range of 18% to 35.99%.
One Main Financial is great for those with bad credit scores but needs cash fast. This company does not factor in excellent credit scores in approving loan applications and can even accept those with lower-than-average credit. What matters to this lender is your ability to pay back the loan, and it should be apparent just from your application.
The drawback, of course, is this lender’s high rates. It has one of the highest rates among other online lenders, and it also charges an origination fee. But this can be ameliorated by adding a cosigner to your application or opting for its secured loan instead.
Frequently Asked Questions (FAQ)
Yes, it is possible, but you have to prove to creditors that you have other sources of income to repay your debt. Usually, if the only reason for your lack of a job is due to unexpected unemployment, but you have a good credit score, there is a good chance that lenders may grant you the loan.
Yes, it is possible to do so, but it would be much easier if you have one because your account is where lenders deposit the money you borrowed. Also, without a bank account, your options may be limited to high-fee lenders.
A private lender is either an individual or group of individuals who are not necessarily in the business of lending money but may pool funds to finance investments or businesses, one of which may include extending loans with the sole purpose of earning a decent return.
It sometimes is because it frees you of any debt, which saves you money in the long run, and it might even improve your credit score. However, the disadvantage is that you might pay an early settlement fee or a prepayment penalty fee.
The answer is yes. It is entirely up to you to decide what to do with the sum of money you borrowed. Still, you have to remember that lenders ask what your loan’s purpose is in your application as it is one of their criteria for determining their risk in lending you money.
