5 Best Debt Consolidation Loan Companies in January 2021
There are many debt consolidation loan companies to choose from. We have extensively reviewed the best 5 of them for 2021.
Estimated APR: 7.99% - 35.97%
- Personal loan maximum is $50,000
- Hardship plans available and competitive
- Simple application process for self-employed customers
- Impressive Debt consolidation program
- $10 late payment fee
- Huge variety of loans
- No prepayment penalties
- Minimum credit score set at 600
Estimated APR: 9.95% - 35.99%
- Rate estimate subject to soft credit checks
- Loan amounts range between $2,000 – $35,000
- These loans may not be used for student debt repayment
- Avant loans subject to one source admin fee up to 4.75%
- There are no prepayment penalties
- Terms range between 2, 3, 4, and 5 years
- Loan rates are fixed for the duration of the debt
- A minimum FICO score of 580 is needed for personal loans
Estimated APR: 5.99% - 18.83%
- Borrowers not subject to minimum FICO scores
- Offers both fixed and variable interest rate options
- Qualify for loan amounts between $5000 – $100,000
- Loan terms vary between 3, 5, and 7 years in duration
- Loan payments can be temporarily paused in the event of unemployment
- A discount of 0.25% is available once autopay is enabled
Estimated APR: 10.68% - 35.89%
- Fixed interest rates on loans
- Loan origination fees between 1% – 6%
- Rate estimates require a soft credit check
- Loan terms vary between 3 years and 5 years
- A minimum FICO score of 600 points is needed
- Debt consolidation loans range from $1,000 – $40,000
- LendingClub does not charge application fees and penalties
- P2P lending platform with plenty of flexibility for personal loans
Estimated APR: 6.99%-24.99%
- Discover offers personal loans between $2,500 – $35,000
- Balance transfer options available with low promotional APRs
- Home equity loans (HELOC) between $35,000 – $200,000 available
- No origination fees and no collateral needed for debt consolidation loans
- Student consolidation loans for refinancing private and federal student loans
How do debt consolidation loans work?
Recall that the purpose of a debt consolidation loan is to combine all of your debts into one simple monthly repayment.
What are unsecured debt consolidation loans?
The term ‘unsecured’ indicates that you as the borrower do not need to provide security for the loan to pay off debt.
What are secured debt consolidation loans?
The term ‘secured’ indicates that you as the borrower need to provide security for the loan to pay off debt. This can be any kind of property or an asset like your car.
A Quick Example:
If you owe credit card debt at a high APR, you may want to consider consolidating your loan in order to save money on your monthly repayments, as indicated below:
Example: Credit card debt $10,000 at 25% APR @ $950.44 per month with $1,405.31 in interest charges.
With a debt consolidation loan at a 15% interest rate for example, your monthly repayment is $902.58, with $831.00 in interest charges.
What are the types of debt consolidation loans?
Debt consolidation loans can be used for a wide range of debts such as:
Is it a good idea to Consolidate your loan?
It certainly could be, depending on who is offering the debt consolidation loan, how much you're paying for it over time, what the hidden fees and charges are, and if there are early repayment penalties on the loan.
Let's take a look at the reasons why it could work in your favor:
• Single monthly payment. With a low-interest debt consolidation loan, you can repay all your debts instantly and make a single monthly payment for the loan.
• Lowering monthly payment. You pay less interest on the loan than you do with credit card repayments, payday lenders, and personal loans, you are coming out ahead.
• Lowering interest rates on debt consolidation. By applying for a low-interest debt consolidation loan, you can knock out your high-interest credit card debts instantly and have a lower overall interest rate to pay.
• Better credit score. If you can pay off your debts with a lower interest rate your credit score will improve over time.
What are the risks?
Debt consolidation, while potentially very useful, can also have downsides.
• Assets risk – Assets are used as security include vehicles, homes, personal items, and retirement savings. If you fail to repay the loan, creditors can invariably seize your assets.
• More Interest – If you apply for a consolidation loan, you will have an additional loan to contend with, and the associated interest repayments on the new loan.
What are the qualifications for a debt consolidation loan?
Most banks and lenders will look at your credit score to determine if you qualify or not.
Other factors that play a part are your education, work history, and income level.
• Application process – apply on your own or seek professional assistance for a restructured payment plan for debt consolidation. Analyse your debts set a budget and a payment plan, and make the necessary calculations to determine if you can afford it.
• Choose the loan terms – our expert reviews of the top debt consolidation companies are a great place to start when you're choosing loan terms. Check the rates, including the APR, the monthly payment amounts, and the minimum credit score required.
• Finalize the application - once you have input your information, you will be redirected to create an account and apply for your loan. When everything looks good, submit the application.
• Wait for loan approval – provided there are no issues application, you should have no problems getting approved for a loan. Simply wait and you can typically receive your funds within 5 days.
• Repay the loan – meet your monthly instalments or repay it early in full without a penalty.
Best Debt Consolidation Company: How to Choose
When selecting one company over another, compare them carefully in terms of the following features: interest rates, loan and refi terms, fees, penalties, repayment options, and hardship grace period.
Important lender features:
• APR (annual percentage rate) – most lenders use a fixed annual percentage rate, but some will offer you variable interest rates. With fixed rates, you know exactly what your monthly instalment and interest will be for the duration of your loan term; with variable rates you don't.
• Loan origination fees – Origination fees are charged by debt consolidation companies for processing a loan. If possible, seek lenders with no loan origination fees.
• Refinancing terms – the minimum/maximum loan amount, loan period, and processing time, discounts, and any restrictions which apply (what can the loan be used for) are part of the refinancing terms.
• Loan repayment options – the loan repayment plan determines how your payments will be made. It is important to set a budget to meet the minimum monthly payment.
• Penalties –If you fail to make payment in a timely fashion, you may be subject to late fees, that will only increase your debt burden.
What are the Alternatives?
Debt consolidation is not for everyone. If your debt has grown too large, you may be required to seek alternative solutions.
• 0% APR credit card balance transfers – otherwise known as (balance transfer cards) a credit card issuer allows you to transfer your debt onto the 0% APR credit card (for a period of usually 12 – 18 months) with a balance transfer fee included on the amount that you are transferring.
• Apply for credit counselling services - these are typically non-profit entities involved in offering money management counselling, setting budgets, and providing you with feasible solutions for your financial affairs.
• Apply for debt relief services – seek professional advice for your financial situation from credit counsellors. They can help you put together a strategy for repaying your debt, or negotiating on your behalf for debt settlement.
• Be careful of debt relief scams - never pay any fees upfront for credit counselling.
• Debt settlement – these companies negotiate with creditors to settle your debt (which will negatively impact your credit score), they are expensive, and many creditors are unwilling to work with them.
• Debt management - this service by credit counselling companies creates a plan (creditors and customers) for debt management. Late fees may be forgiven and interest rates may be lowered. The credit counselling service receives a percentage of the earnings from the creditor.
• Payday loans – a payday loan is a short-term loan offered by a lender. The amounts are typically $500 or less, and they come with sizeable interest rates, typically $15 for every $100. With APRs in the region of 400% +, they are much more expensive than credit cards.
• Bankruptcy – is often used as a last resort when debts become so overwhelming. Bankruptcy makes it virtually impossible to qualify for a mortgage, and you may lose valuable assets.
Debt consolidation loan rates
|How Good is Your Credit?||Your Credit Score||Effect on APR*|
|Poor credit||300 – 579||Highest APR|
|Fair credit||580 – 669||Fair APR|
|Good credit||670 – 739||Competitive APR|
|Great credit||740 – 850||Lowest APR|
*Note: We have not posted specific APRs since this information is not published by companies offering debt consolidation loans. Given the changing nature of interest rates, it is safe to say that the highest APR is associated with the lowest credit scores, and the lowest APR is associated with the highest credit scores.
Debt consolidation with the right lender can be a powerful tool for managing your debts. By consolidating all your debt into one monthly payment at a lower interest rate than the average of all your outstanding debts, you can substantially reduce your overall debt burden. This tool must be used in conjunction with a structured budget, and sharply reduced expenditure.