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Best Loans to Consolidate Debt in 2020

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Repaying debt can be stressful, and managing multiple monthly payments might not be the best use of your time or money. Consolidating the debt—combining multiple loans into one new loan—can simplify your finances.

Depending on your new loan's terms, you may also be able to save money and decrease your monthly payment amount by lowering your interest rate. The result could be less stress and a shorter runway to your debt-free future.

How Do Debt Consolidation Loans Work?

A debt consolidation loan is similar to other types of loans—you borrow money and repay it over time. The difference is instead of using it to, say, buy a house, you use a debt consolidation loan to pay off other loans or credit card debt.

Some debt consolidation loan lenders make this easier by sending the money directly to your creditors. Others are marketed as debt consolidation loans, but they're like other unsecured personal loans that transfer the money into your bank account. After receiving the loan, it's up to you to follow through and use the funds to pay your other debts.

Another option is to use a secured loan to consolidate debts, such as a home equity loan or cash-out mortgage refinancing. However, using a secured loan to pay off unsecured debt (such as a credit card) can be risky. If you can't afford your secured loan payment, you might lose your collateral—your home in the case of a home equity loan or refinance.

Missing payments on an unsecured loan can lead to fees, hurt your credit and may eventually result in the creditor suing and getting a judgment against you. But you won't be putting your possessions directly at risk. As a result, it may be best to use unsecured personal loans or perhaps a balance transfer credit card to consolidate debt.

Debt Consolidation Pros and Cons

While consolidating your debts can help you manage your money and pay down loans, there are pros and cons to consider:

Pros

  • If your new loan has a lower interest rate than your current loans, less interest will accrue each month.
  • Your debt consolidation loan may have a smaller monthly payment than your current combined monthly payments.
  • Consolidating credit card debt with an installment loan could increase your credit scores.
  • Your new loan's repayment term gives you a clear timeline for paying off the debt.

Cons

  • You might not qualify for a consolidation loan with a low interest rate.
  • Even if you get a loan with a low interest rate or monthly payment, you could wind up paying more interest overall if it has a long repayment term.
  • Some loans have origination and prepayment fees.
  • If you consolidate credit card debt and continue to use your credit cards without paying the bill in full, you could wind up with more credit card debt and the consolidation loan to repay.

Find the best personal loans in Experian CreditMatch.

What to Look for in a Debt Consolidation Loan

As you compare potential debt consolidation loans, there are a few features you may want to focus on to slim down your list of potential lenders.

  • Loan amount: Do the minimum and maximum loan amounts meet your needs?
  • Repayment terms: Will the minimum and maximum loan repayment terms meet your needs? A longer term will mean lower monthly payments, while a shorter term could mean repaying less overall.
  • Preapproval: Can you get an estimate of your approval, loan amount and rates with a soft credit check—the kind that doesn't impact your credit scores?
  • Origination fee: Do you have to pay a fee when you take out the loan?
  • Prepayment fee: Is there a fee for paying off the loan early?

The interest rate on a debt consolidation loan is also important in determining whether taking the loan and consolidating your debts make sense. Often, lenders advertise a range of potential annual percentage rates (APRs), but your rate will depend on your creditworthiness.

The rate range isn't particularly helpful as you won't know your rate offer until you apply or get preapproved. However, if you have excellent credit, you may want to target lenders that offer the lowest potential rates.

Also, consider whether you want a loan with a fixed or variable rate. Many lenders offer fixed-rate loans, which give you the certainty of the same monthly payment amount for your loan's entire life. Variable rates often start lower than fixed rates, but may rise in the future.

Top Debt Consolidation Loan Providers

You can find debt consolidation loans from banks, credit unions and online lenders. Here are a few of the top choices, and what you'll want to know about each lender. If you want to receive personalized recommendations based on your credit, try the Experian CreditMatchTM tool.


SoFi

Apply

on SoFi's website

Recommended FICO® Score
Good - Exceptional

Est. APR

5.99 - 17.76%

Term

24

Amount

Available loan amounts: $5,000 to $100,000

Estimated monthly payment: $219 to $4,944

Grace period: 10 days

Application fee: $0

Loan Details
  • Personal Loans at fixed rates from 5.99% APR (with autopay)
  • Borrow up to $100,000
  • No Origination Fees, No Prepayment Penalties, and No Late or Overdraft Fees
  • Simple online application with live support 7 days a week
  • Apply Now
Disclosure

SoFi is an online lender that tends to be a good fit for those with good to excellent credit. It offers fixed-rate loans with high potential loan amounts and few fees.

  • Loan amount: $5,000 to $100,000
  • Repayment terms: 24 to 84 months
  • Preapproval: Yes
  • Origination fee: No
  • Prepayment fee: No

Payoff

Apply

on Payoff's website

Recommended FICO® Score
Good - Exceptional

Est. APR

8 - 25%

Term

24

Amount

Available loan amounts: $5,000 to $35,000

Estimated monthly payment: $219 to $1,816

Grace period: 10 days

Application fee: $0

Loan Details
  • 8% - 25% APR
  • Pay off high-interest credit card balances and save
  • Quickly check your rate without affecting your credit score
  • No prepayment, late, or check-processing fees
  • Members see an average FICO® Score boost of 40 points when paying down credit card balances1
Disclosure

Payoff's fixed-rate loans are intended for consolidating credit card debt and have loan amounts and terms that will generally meet this need. It also lists some specific criteria for getting approved, such as having at least a three-year credit history and a debt-to-income ratio that's 50% or less.

  • Loan amount: $5,000 to $35,000
  • Repayment terms: 24 to 60 months
  • Preapproval: Yes
  • Origination fee: 0% to 5%
  • Prepayment fee: No

Upgrade

Apply

on Upgrade's website

Recommended FICO® Score
Fair - Exceptional

Est. APR

7.99 - 35.97%

Term

36

Amount

Available loan amounts: $1,000 to $35,000

Estimated monthly payment: $30 to $1,467

Grace period: 15 days

Application fee: $0

Loan Details
  • Affordable loans from $1,000 - $35,000 with low fixed rates that will never change, affordable monthly payments, and no prepayment penalties
  • Quick online application -- get pre-approved in just minutes
  • Checking your rate won't impact your credit score
  • Review multiple loan options so you can pick the amount and term that fits your budget and timeline
  • With automatic payments and a customizable due date, managing your account is easy and you'll be able to circle the date on your calendar when you'll be debt free
Disclosure

You can use a loan from Upgrade to consolidate a wide variety of loans. However, if you want to pay off credit cards, Upgrade gives you the option of making payments directly to the card companies. Any excess loan amount will be sent to your bank account.

  • Loan amount: $1,000 to $35,000
  • Repayment terms: 36 or 60 months
  • Preapproval: Yes
  • Origination fee: 1.5% to 6%
  • Prepayment fee: No

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