Unsecured Loan for debt consolidation - Bad Credit
Dealing with debts is a hassle, and it gets even tougher when you have credits up on your neck, too. At this point, directing most of your funds towards reducing the debts can bail you out. It’ll help you reduce the debts and avoid accumulating penalties.
Consolidating your loans, however, will work even better. And you could also prevent the negative effect on your credit scores by paying your debts sooner. But, consolidation loans (or any loans for that) are hard to come by with a bad credit score.
You still have a couple of options you could explore. However, they could be expensive, and limited. We sampled the best unsecured loans for debt consolidation with bad credit. We prioritized those with friendly terms and lower rates. Take a look;
- Fixed APR
- Loan Amounts
- Recommended Minimum Credit Score
LendingClub
- 10.68% to 35.89%
- $1,000 to $40,000
- 580+
OneMain Financial
- 18.00% to 35.99%
- $1,500 to $20,000
- 600+
Avant
- 9.95% to 35.99%
- $2,000 to $35,000
- 600+
- 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 Secured Loan for debt consolidation works?
Debt consolidation loans are meant to make the process of debt repayment easier, cheaper, and faster.
These unsecured and fixed-term loans are offered by banks, credit unions, and online lenders to help borrowers who are overweighed by the burden of defaulted loans and accumulating interests in credit debts.
A single loan is meant to clear all the existing debts of a borrower. Upon approval, the lender either sends it directly to the creditors, or to the borrower’s account, who then proceeds to pay off the loans.
That, then, leaves you with only one debt to service monthly. And because its terms are fixed, you’ll be more organized, with missed repayments hardly going to your records.
For unsecured loans, however, borrowers don’t need to offer collateral. That makes them less risky to them. They won’t have to risk repossession of their homes, vehicles, or any other valuable assets.
On the other hand, unsecured consolidation loans are risky to lenders. They are not assured of your ability to repay the loan. And, in case you default on the loan, the chances of recovery would be slim.
Please note that, though it’s possible to get consolidation loans with a bad credit score and no collateral, you’ll likely part with higher rates and even higher repayments.
Requirements to qualify
These vary from one lender to another. However, for all lenders, you must be a legal resident of the United States. You must also be aged between 18 years and above. The lender verifies this by looking at your ID, valid driving license
Almost every lender will also look at your credit score. A score below 670 is considered risky by most lenders, and approval for such is often difficult. And, in case you’re approved, you’ll often pay higher interests, which is beside the whole point of debt consolidation.
However, you can still shop around for lenders with affordable rates. The above table contains such lenders. Prioritize the ones with whom you have an existing relationship. They tend to be more affordable with even more flexible terms.
Similarly, consider prequalification, especially with several lenders. This will help you know beforehand which loans you qualify for while evading the negative impact on your credit score that comes with hard credit checks.
If yours is a bad credit score, consider boosting it to increase your chances of qualifying for bad credit consolidation loans. though a long shot, it’ll have you winning the heart of almost every lender there is. We’ll cover that in detail later in this post.
Lenders also want to see a lower debt-to-income ratio. To get this, strive to increase your income by paying off small manageable debts. Alternatively, you can go for that promotion at work, or start a side hustle.
A form of identification can be your passport, driver’s license, etc. Sometimes, your Social Security number is enough.
Understand your options
When exactly should you go for a bad credit unsecured debt consolidation loan? Knowing this will not only get you out of debts faster but help you rebuild your credit profile, too. Go for unsecured loans for debt consolidation with bad credit when;
They have low interest rates
The aim is to find a loan with lower rates than your current accumulated debts. If yours isn’t, then you’ll end up spending more than you could have if you’d just paid your debts directly.
Please note that loans with longer terms will have you paying more interest hence ending up being expensive in the long run.
When you have a good credit score
Consolidation loans are more accessible to borrowers with good credit scores. Theirs often attract lower interests and more flexible terms, even higher loan limits. Plus, with a good credit score, you may not need to offer collateral.
You have a consistent monthly cash flow
Remember, consolidation doesn’t completely take you out of debts. Instead, it buys you more time to pay off your debts and saves you from accumulated interests and penalties. You should, therefore, be able to service your monthly repayment.
Your total monthly debt service fee shouldn’t be more than 40% of your monthly income. Defaulting on a debt consolidation loan will only hurt your credit score further.
You have anything to offer as collateral
Secured debt consolidation loans are easy to qualify for, and you’ll have multiple lender options to choose from. You can use your home, car, boat, or any asset as security for your loan.
The only conditions are that you must be the legal owner of the property and its value be similar or more than that of the consolidation loan. Lenders view such loans as less risky. However, you risk losing your property should you go against the lender agreement.
Pros and cons
| Pros | Cons |
|---|---|
|
Simplified finances – consolidation loans reduce your multiple loans to a single debt with monthly repayments. Having a single lender encourages consistency in repayments hence reducing the chances of missing repayments. The process of repayment is also made easier and faster |
Borrowers with bad credit scores will likely part with interests higher than what they would normally pay with their multiple debts. That makes consolidation loans more expensive than outrightly repaying your loan. |
|
Lower interests – the most crucial consideration when going for consolidation loans is interest rates. It should be lower than the accumulated interests of your existing debts. That makes repayment cheaper. You’ll know what rates an institution charges by looking at its APR. the lower, the better |
Finding a lender willing to offer you a loan with a bad credit score is hard, especially if you don’t have collateral or a cosigner. |
|
Fixed repayment – most debt consolidation loans come with fixed monthly repayment terms and interests. This implies that the interests and repayments will be constant throughout the life of the loan. |
Strict application process – because you don’t offer any collateral, lenders will be more strict on the application process, especially because you also have a bad credit score. |
|
Could boost your credit score – paying off multiple debts at once, which is what consolidation does, works to your favor with credit agencies that are inclined to assign you a higher score. Plus, the new consolidation loan lowers your credit utilization ratio, a sign that credit agencies are keen to notice to further boost your score. |
|
Average debt consolidation unsecured loan rates
The current average for debt consolidation loans currently stands at 18.56% APR. That implies that you’ll be charged an interest rate of between 8.31% and 28.81%. But that varies depending on the lender and the specific loan product in question.
Debt consolidation loans generally attract lower rates. However, for unsecured debt consolidation loans, the lender pays special attention to your credit profile. And, that will determine what rates you’re charged.
Secured consolidation loans also attract among the lowest scores since the lender is assured of repayment and subsequent recovery in case you are unable to repay.
Your debt-to-income ratio will also play a major role in what you pay as interests. A lower debt-to-income ratio will have you paying lower rates. You get such by reducing your debts and increasing your monthly income flow.
Our chosen lenders above have fixed APR of between 7.70% and 35.99% on unsecured loans for debt consolidation with bad credit. Those are among the lowest in the present market. Shop around with rates that conform to your financial goals.
Good credit scores, typically anything above 670, get the lowest interests. While borrowers with lower scores pay the highest interest.
BOOST YOUR CREDIT SCORE!
A good credit score will grant you endless opportunities with a different lender. You’ll have access to cheaper loan products. You’ll also part with lower interest rates and even higher loan limits.
A score below 600 will see you have a hard time getting your loan approved. The following steps will help you boost your score;
- Repay your existing debts – Reduce your current debts by channeling most of your unassigned income to clearing your debts. Such repayments will have your lender updating your records with credit agencies positively. Plus, this will also lower your debt-to-income ratio, a sign that credit agencies are keen to note to boost your score
- Pay your bills on time – your utility bills, rent, telephone, and other monthly bills should be paid on time. A single late repayment can cost you up to 50 points off your score. Timely repayment is also a sign to lenders and credit agencies that you can afford your bills and possibly another loan.
- Leave your credit accounts open – unless it costs you money on monthly maintenance and such, resist the urge to close your unused credit accounts. This increases your credit utilization ratio hence boosting your score
- Request for your credit reports – regularly request for your credit reports from any of the major credit reporting agencies. While at it, be keen to notice any errors. And, when you do, notify the respective agency immediately and file a dispute. It’s recommended that you request these files from different agencies
· Avoid taking new loans – resist the urge to take new debts, especially credit card debts. As you apply for loans, lenders perform hard credit checks on you hence hurting your score. If you have to take a loan, consider prequalification. This will help you know the options you qualify for without hurting your credit score.
Alternatives to unsecured loans for debt consolidation
If unsecured debt consolidation loans aren’t what you need, or for some reason you don’t qualify for one, then you could rethink your options.
But first, you could try out some DIY fixes for your debt situation. That includes such things as debt overhaul. Here, you compare your spending versus earning and see which costs you can cut to clear some debts.
Alternatively, renegotiating your loan terms can also help. Your lender can consider lowering your interests and monthly repayments if you’re struggling to meet the terms of your loans.
You can also choose between any of the following options;
- Home equity – this is a loan taken by homeowners using their homes’ equities as collateral for their loans. they are less risky to lenders but highly risky to borrowers.
- Credit counseling – this is an option for borrowers who’ve sunk even deeper I debts. Here, you hire a credit counseling agency to act as middlemen between you and your creditors.
- Debt settlement – debt settlement companies work to help you negotiate for and pay lower rates to your creditors
Frequently Asked Questions (FAQ)
Yes. However, it may be difficult getting a lender to approve your loans. And, when you do, you often part with higher rates.
Having a strong income and good credit history can bail you out.
The biggest and most common risk of debt consolidation is the possibility to sink deeper into a recurrent debt cycle.
Debt consolidation loans repay all your existing loans at once. That increases your credit utilization and will see different lenders positively updating your credit records.
Banks, online lenders, and credit unions are the most common sources. The table above samples some of the best picks. determining their risk in lending you money.
