Personal Loans For Debt Consolidations: A Quick Guide

Banks Editorial Team · June 8, 2018

We’ve all been there: expenses have piled up, and our credit card payments are getting higher and harder to complete because of high-interest rates. Throw an existing personal loan into the mix and you’ve got the ideal scenario to consider looking into loans for debt consolidations. It might as well be the only way to get rid of your debt by refinancing it with lower payments, a longer payment period, and more convenient interest rates.

First thing first: compare different lenders to make sure you are getting the best rates:

Loans for Debt Consolidations

Loans for debt consolidations can be a great way to unify monthly payments and take care of your existing debt with the lowest possible interest rates. Through these kinds of loans, the lender will normally provide one lump sum that can be used to pay off your existing credit card balances and cancel any existing and qualifying debt, which is in turn refinanced to the conditions of the debt consolidation loan through fixed monthly payments over a set period. However, you’ll have to evaluate if the option makes sense over others such as a balance transfer credit card, which can have 0% APR for 12 to 21 months.

 

 

When is it Wise to Take a Loan to Consolidate Debt?

Refinancing credit card debt makes sense only when a lower rate than the one the credit card institution is charging and better payment terms are provided. Personal loans might also provide additional benefits and features. Loans for debt consolidations normally are offered for 36 to 60 monthly payments, which is equivalent to terms of three to five years. Their interest rates can be anywhere from 5% to 35%, depending on the borrower’s credit score and whether the loan is secured or not. Some options include SunTrust Banks’s division, LightStream, which offers personal loans for debt consolidations with no fees, terms of up to 84 months, and same-day funding. Their rates start at 5.49% for $10,000. SoFi is another option, matching many of LightStream’s features (such as $0 fees, low refinancing rates, and 7-year terms), but they exclusively provide debt consolidation loans for unsecured credit card debt. Upgrade is available through a simple online application that checks the borrower’s rate and offers loans from $1,000 to $50,000 payable over 3 to 5 years.

Credit Score and Loans

Your credit score is something to consider when shopping for loans for debt consolidations. If you are currently at 720 or more, it’s highly probable that you’ll qualify personal loans for longer terms and with lower interest rates. Among the things to consider, you should note that when applying for loans for debt consolidations, the lender will likely check your credit, either through a soft inquiry or a hard one. Soft inquiries are only visible to the holder of the score, and won’t affect it. However, hard inquiries will appear on credit score reports and will be viewable by any creditor who pulls up the report. They normally remain there for a period of two years, and they might negatively affect the credit portion of your score that makes up 10% of your FICO score for a total of one year. Most lenders will require for your FICO score to be from 580 to 699 at the minimum (fair credit), and scores from 570 to 739 will get you access to good credit score terms.

 

 

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