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Debt consolidation is a debt management strategy that combines multiple debts into one account. It can be hard to get this type of loan if you have bad credit, but taking these steps can increase your chances of being approved for the loan.
A debt consolidation loan can make it easier to get out of debt. Since you only have one account to manage, you may be able to get a lower interest rate. Plus, a well-managed debt consolidation loan can even help improve your credit score.
Best bad credit loan providers for debt consolidation
| Lender | Best for | East. April | Loan amount | Loan Term | Minimum Credit Score |
|---|---|---|---|---|---|
| Avant | Consolidate small debts | 9.95%-35.99% | $2,000-$35,000 | 2 to 5 years | 580 |
| Best Egg | Direct creditor financing options | 7.99%-35.99% | $2,000-$50,000 | 3 to 5 years | 600 |
| Upstart | Consumers with poor credit history | 7.80%-35.99% | $1,000-$50,000 | 3 to 5 years | No requirements |
How to get a debt consolidation loan even with bad credit
If you’re struggling to get out of debt and think a debt consolidation loan could help you, consider following these steps to find the right debt consolidation loan for your situation: FICO defines bad credit as a score of 579 or lower, but many lenders set their bar for bad credit much higher.
1. Check and monitor your credit score
Check with your bank or credit card issuer to see if they offer free tools to check your credit score.
Lenders base their loan decisions primarily on your credit standing. Generally, the lower your credit score, the higher the interest rate a lender will offer you on your loan.
Many banks offer free tools that allow you to check and monitor your credit score. Knowing your credit score can help you find lenders who might be willing to work with you. Some lenders specialize in loans to people with bad credit, and many of them will list their credit score requirements on their websites to help you narrow down your options.
2. Do some research
Compare loan options from multiple lenders to find the debt consolidation loan that best suits your needs. Visit each lender’s website to learn about their products and eligibility requirements.
Accepting the first loan offer you see is almost always a bad idea. Instead, do your research and compare loan amounts, repayment terms, and fees from multiple sources. Get pre-qualified with at least three lenders to see potential interest rates without a hard credit check.
You can find these loans at local banks, credit unions, and online lenders. This process takes time, but it could save you hundreds, or even thousands, of dollars.
3. Consider cosigners, joint loans, and secured loans
To increase your odds of being approved for a loan and improve your chances of getting a lower interest rate, consider using a co-signer or co-applicant or look for a secured personal loan.
If you’re having trouble qualifying for a regular debt consolidation loan, it may be worth taking out a secured loan, getting a creditworthy friend or family member to cosign or apply as a co-applicant.
- A loan with a cosigner. Co-signers share the legal responsibility for the loan but not the ownership. Signing loan documents with a creditworthy family member or friend can increase your chances of being approved and lower your interest rate.
- Joint loan. A co-applicant (also called a co-borrower or co-applicant) assumes the debt along with the primary borrower and has joint ownership of the balance.
- Secured loans. These loans require some sort of collateral, like a car, home, or other asset. If you default on your repayments, the lender will seize the collateral to recoup their funds. For this reason, it is usually easier to get approved for a secured loan than an unsecured loan, and you may even qualify for a better interest rate.
Where can people with bad credit get debt consolidation loans?
With so many lenders out there, it can be overwhelming to decide where to start. Here are some good places to start your search when choosing the right debt consolidation lender.
Credit unions and local banks
If you’re a customer of a local bank or a member of a credit union, you can talk to a loan officer about whether you qualify for a personal loan and, if so, what the interest rates and terms would be. Financial institutions may approve you for a loan by considering not only your low credit score, but also your financial history, personal situation, and your overall relationship with the financial institution.
Online Lenders
If you have bad credit, online lenders are a good place to look for debt consolidation loans. Online lenders offer loans for people with bad credit and generally have more flexible eligibility criteria than traditional banks. However, online lenders usually charge higher APRs and fees for debt consolidation loans for people with bad credit.
Beware of predatory lenders
Predatory lending is lending that benefits lenders at the expense of borrowers. Predatory lending is common in the bad credit sector. These companies take advantage of borrowers’ difficulty obtaining credit through traditional means and sell them risky loan products. Warning signs include:
- Triple-digit interest rates and equally exorbitant fees.
- The pressure to act quickly.
- Lenders will ask you to lie on your application.
- Prices and terms change suddenly when you sign a contract.
Accepting such a loan can be very costly and put you further into debt. Plus, using a predatory lender makes it harder for you to keep up with the high payments, defeating the purpose of a debt consolidation loan: to make it easier for you to get out of debt.
Conclusion
If your credit score isn’t great, it may be difficult to get a consolidation loan, but it’s not impossible. Some lenders accommodate borrowers with low credit scores. You can also apply for a traditional personal loan with a co-signer or co-applicant. Whatever option you choose, make sure the loan is legitimate. It’s not uncommon for loans with unreasonably high interest rates to be offered as loans for low credit scores.
