- Personal consolidation loans are among the fastest-growing debt categories.
- Traditional banks, online companies,and peer-to-peer lenders offer debt consolidation loans.
- The best consolidation loan will save you money while spreading payments over a long enough term to create an affordable monthly amount.
Personal consolidation loans are popular because you can often borrow enough to transfer balances to a single loan, eliminating high debt balances faster. You save money by locking the rate and paying the bill over a set term.
Today you can find loans at traditional banks, online companies, and peer-to-peer lenders. The growth in availability and a streamlined process makes them more popular than ever. In most cases, after submitting all required documents, you can receive funds within a few days.
How do you choose the best one for your needs with so many lenders offering personal loans?
What Terms Will You Receive?
Lenders decide on the loan terms based on the quality of your application. The three main factors under consideration include credit, income, and current debt payments. Secured loans involve an evaluation of the collateral offered. However, the approval of a personal loan does not require a lien on your assets.
The interest rate offered:The interest rate largely depends on your credit score. Higher credit scores lead to lower interest rate offers. Lenders may also have minimum score requirements, often in the mid-600s.
Some lenders specialize in providing loans to those with credit challenges, but rates will reflect the higher risk.
How much can you borrow? The loan amount takes into consideration your income in relation to your current debt. Lenders focus on the minimum monthly payment for each account rather than the total amount owed. The more income you have in relation to your debt, the more you can borrow.
How long will the loan last?The loan term has a direct impact on the monthly payment. In general, the longer the loan term, the lower your cost. Most lenders limit terms to a maximum of seven years. Applicants with lower credit scores often get offers for shorter loan terms.
The loan payment: Loans tend to have a fixed rate, term, and payment, giving you a predictable amount due each month and a set payoff date. These features simplify the loan and make it easier to get rid of debt.
Prepayment penalties are uncommon on debt consolidation loans, allowing you to expedite the payoff if you are able.
Fees charged: Most lenders charge origination fees as a percentage of the amount you borrow. Charges range from zero to 10% of the loan amount. Lenders may add the closing costs to the loan amount or deduct them from the proceeds. You may need to request a larger amount to cover these costs if it is a deduction.
Finding a reputable company
Lenders that are members of industry associations and have a good record with the better business bureau are more likely to have customer-friendly policies. Review sites like Trust Pilot can also provide valuable customer feedback based on actual customer experiences.
Finding The Best Loan Terms
Shopping rates can provide the best options. When doing so,consider the following:
Impact on your credit: Some online lenders allow you to compare rates through a soft credit pull. This type of credit review does not affect your score. Once you choose your lender and apply, the lender of choice conducts a hard credit pull.
Comparing loans: Rates are not the only consideration. It’s important to review the total cost over the life of the loan to determine your total savings. These calculations include upfront fees along with the interest and loan term.
