Company |
Est. APR
|
Min. Credit Score |
Loan Amount |
Loan Term |
Upgrade |
5.94% to 35.97% |
Undisclosed |
$1,000 to $50,000 |
24 to 84 months |
Upstart |
5.22% to 35.99% |
300 |
$1,000 to $50,000 |
36 or 60 months |
Oportun |
7.99% to 35.99% |
Undisclosed |
$300 to $20,000 |
12 to 48 months |
Lending Club |
6.34% to 35.89% |
Undisclosed |
$1,000 to $40,000 |
36 or 60 months |
AmOne |
2.49% to 35.99% |
Undisclosed |
$100 to $50,000 |
12 to 84 months |
Where Can You Get a Debt Consolidation Loan with Bad Credit?
- Banks: Your local bank may be able to offer you a debt consolidation loan, but banks typically have stricter criteria for approval than online lenders or even credit unions.
- Credit Unions: A credit union can be a good option for a debt consolidation loan, but not all credit unions will lend to borrowers with bad credit, and there are typically membership requirements associated with these loans.
- Online Lenders: Online lenders use a wider array of information and rely on technology when making decisions, so they’re typically more lenient with bad credit borrowers. Plus, they offer a more convenient online process with faster funding.
What Credit Score Do You Need for a Debt Consolidation Loan?
That depends. The goal with a debt consolidation loan is to get a lower APR than you are currently paying your creditors. If you have high-interest debt like payday loans or title loans, you may be able to consolidate that debt and save with a loan from a lender like Oportun or Upstart, even if you have bad credit or no credit history. However, to beat the average APR on a credit card, you’ll likely need good credit, or a FICO score of 670 or above. If you have fair credit, applying with collateral, a co-signer, or a joint applicant may help you get a rate low enough to beat your current credit card APR.
How to Get a Debt Consolidation Loan with Bad Credit
- Check your credit: Look at your free credit report to see where you stand, and dispute any errors.
- Narrow down your options: Start with this list and eliminate any options you don’t qualify for.
- Prequalify: Check your rate with any remaining lenders. This will only require a soft credit pull and will not harm your score.
- Select a lender: Choose the lender offering the lowest APR and fill out a formal application, supplying additional documentation as needed.
- Sign and accept: Once you’re approved, read the fine print, make sure you understand the terms, and sign your loan documents online.
- Receive the funds: Wait for the funds to be deposited into your bank account, which will typically happen within a few days.
What Are the Dangers of Debt Consolidation Loans with Bad Credit?
- Damage to your credit: A formal application for a debt consolidation loan will cause a small decrease in your credit score. Your score will recover quickly, but if you’re not approved, you may have even more difficulty with your next application for credit.
- Qualification issues: If you can’t get a lower APR than you’re currently paying, a debt consolidation loan is not worth it. Always do the math to make sure you’ll be actually saving money.
- Cosigner/joint applicant issues: If you need to apply with another borrower or co-signer to get a low enough rate, defaulting on the loan could damage your relationship with that person as well as their finances.
- Loss of collateral: If you need to put up collateral such as your vehicle title to secure a loan, you’ll risk losing that asset.
What to Do If You’re Not Approved
If you’re not approved, you have the option of applying with another lender that has more lenient eligibility criteria. If you still can’t get a loan or can’t get a low enough rate to make the loan worthwhile, the best thing to do is to pick a debt repayment strategy to use until your credit score improves. The fastest and cheapest method of paying off debt is the debt avalanche method, which involves tackling your high-interest debts first. You should reevaluate your budget and try to make room for extra payments to support this strategy. When your credit score improves, you can try applying for another debt consolidation loan.
How to Improve Your Credit Score
- Dispute any errors currently on your credit report
- Always pay at least the minimum payment amount by the due date
- Make extra payments to pay down debt and reduce your utilization ratio
- Ask for a credit limit increase to reduce your utilization ratio
- Avoid applying for new credit unless it’s necessary
- Avoid closing any old accounts unless you’re trying to avoid fees
- Consider debt consolidation or a balance transfer if it will help you pay down debt faster
Alternatives to Debt Consolidation Loans
- Balance Transfer Credit Card: Some credit cards offer a 0% introductory APR, which can be a good option if you can manage to repay your debt within 18 months. You’ll likely pay a balance transfer fee but will still save money on interest.
- Home Equity Loan or HELOC: These are forms of financing secured by the equity in your home. They’re often easier to qualify for than personal loans.
- 401(k) Loans: If your plan sponsor offers 401(k) loans, you can borrow from yourself to pay off debt without a credit check.
- Credit Counseling: Consider seeking help from a nonprofit credit counselor, who can help you get lower interest rates on your debts.
- Debt Settlement: You can offer to settle the debt for less than you owe, either on your own or with the help of a debt settlement company. We don’t recommend this option unless you are already several months delinquent and have a lump sum you can personally offer your credit card issuer. Debt settlement companies charge high fees and don’t always get results.
- Bankruptcy: This legal process can wipe out most of your debts, but it will destroy your credit, making life difficult in other ways.
Conclusion
Getting a debt consolidation loan with bad credit might feel impossible, but you have options. Take advantage of opportunities to lower your rate by putting forth collateral or applying with another borrower or co-signer. And prequalify with several lenders to make sure you’re getting the lowest rate before you apply. Finally, remember to calculate the total interest you’ll pay with and without the loan. If you can save money, it’ll be worth consolidating your debt. Always choose a repayment term you can afford, but don’t be afraid to make extra payments when you can — none of the lenders on our list charge prepayment penalties, and the sooner you can get out of debt, the better it’ll be for your credit.
