How to get a debt consolidation loan with bad credit

Bad credit is the result of mismanagement of your finances. Of course, nobody wants it because it’s embarrassing, but the worst thing is that you’ll have difficulty finding a loan, especially with low-interest rates.

If your FICO score is below 580, you have a bad credit score. The majority of lenders will not offer you debt consolidation for poor credit, but there are a few who will. Debt consolidation loans for bad credit will help you combine multiple loans into one payment and reduce the interest rate.

What Is Considered Bad Credit?

A FICO score between 300-580 is a bad credit score.

Bad credit is a term used to describe a person’s financial history when they have made poor choices with credit and failed to may payments on time. As a result, getting a loan from a lender can be challenging, as they may view you as a high-risk borrower.

It is one factor that lenders look at when considering whether or not to give you a loan. Some lenders will provide you with a loan, but the terms and rates will not be favorable.

What are the benefits of debt consolidation?

There are many reasons why a debt consolidation loan could be a good option for you:

1. Fixed payment

Multiple loans with variable payments can be a hassle. Most debt consolidation loans have set monthly payments and terms. Making a monthly budget is easier when you know your expenses. 

2. Save money

A debt consolidation loan will most likely benefit you with a lower interest rate; otherwise, it won’t be worthwhile. Interest rates can vary from lender to lender. When interest rates are low, you save money.

3. Lower monthly payments

A debt consolidation loan provider can lower the monthly payment if your goal is to have extra cash. However, lower monthly payments mean you may pay more than you could have due to the long consolidation loan payment duration.

4. No missing payments

Your chances of damaging your credit history by mistakingly missing a payment are low, as there is one payment with a fixed amount you need to pay. It is one of the best tactics for improving your bad credit score. 

Read: Pros and cons of debt consolidation

What does your credit score need to be for a debt consolidation loan?

The minimum credit score for a debt consolidation loan can differ for every lender. But, generally, most lenders prefer a borrower with a fair credit score or higher (580+). Therefore, getting a debt consolidation loan with bad credit can be challenging. If you have a poor credit score, you may still be able to apply for a debt consolidation loan, but the lender may charge you a higher interest rate.

If you have a bad credit score, do not hesitate to reach out to them and see if they have options for you. But, of course, you want multiple options to compare to find the best offer.

Alternatively, get help from a reputable company helping people with low credit scores. They will work with you to build up your credit and ensure you qualify for a debt consolidation loan at an affordable interest rate.

What are the best places to get debt consolidation loans with bad credit?

Bad credit limits your options. Due to your high-risk status, no traditional lender will help you. Your best bet is to start here:

1. Online lenders

Online lenders are the most popular option for people with bad credit who want to consolidate their debts and need money fast. They have flexible eligibility criteria and are lenient with credit score requirements. However, a bad score means higher interest, so double-check.

Additionally, there can be high origination fees that can be a setback. Any third-party lender means additional costs and expenses, so it is a good idea to check if the company is a direct lender.

2. Local banks and credit unions

If you have a relationship with local banks and credit unions, you can benefit from it. Like any financial institution, they will inspect your credit history and look beyond it.

Consult the loan officer to determine if you qualify for a personal loan and the rates and terms you can get. 

How to Get a Debt Consolidation Loan With Bad Credit

The process of loan shopping is the same irrespective of your credit score:

Create a budget

Before reaching out to debt consolidation loan providers, you must work on the numbers. You will need to draft a budget and check on how much you can repay each month.

Knowing ahead of the amount you can pay each month and consulting with the loan officer can help you a lot.

Check your credit score

At the heart of any loan approval is your credit score. All lenders will review your credit history and score to determine the risk level. Again, most will prefer a borrower with a credit score in the mid-600 range. The lower the number, the higher the interest rate and the fewer options.

If you are unsure of your credit score, you can check it from any of the three credit bureaus- Equifax, Experian, and TransUnion.

Window shopping

Once you have obtained your credit score, research the lenders willing to work with you. Many lenders list their credit score requirements on their website, indicating if they work with bad credit. 

Remember, even if you are desperate, you don’t want to accept the first offer that comes your way. Research and compare information such as the loan amount you can get, terms, fees, etc. 

Submit an application

Once you have made a comparison and weighed all your options, fill out the debt consolidation loan application and submit your application. Please ensure you have all the documents requested by the lender to avoid delays and problems. 

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