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Best Debt Consolidation Loan for Bad Credit
Debt consolidation loans for bad credit are out there, but you may have to shop around a bit. If your credit score is less than 650, you might have a harder time than others securing a personal loan or debt consolidation loan. This can be a vicious cycle: you don’t pay your bills because the rates are too high or you miss due dates because there are so many of them, so your credit score decreases. You want to consolidate so you can get ahead, but your credit score holds you back. Fortunately, there are lenders that specialize in debt consolidation for poor credit, so don’t give up hope yet.
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We use our proprietary SimpleScore methodology to compare interest rates, loan terms, customer satisfaction, customer support and fees to find the best debt consolidation for bad credit.
The 7 best bad credit debt consolidation loans of 2020
- Best for Secured Loans: OneMain Financial
- Best for Poor Credit: Avant
- Best Peer-to-Peer Debt Consolidation: LendingClub
- Best for Large Debts: Upstart
- Best for Payment Management: Upgrade
- Best for Flexibility: LendingPoint
- Best for Peer-to-Peer Lending: Peerform
Why trust The Simple Dollar?
At The Simple Dollar, we use a proprietary scoring metric we call the SimpleScore methodology, to rate and compare products and services. We identify five key metrics for every brand using:
- Fees assessed
- Customer satisfaction
- Customer support
- Loan size
- Rates
With this information, we assign a score based on the same criteria, so all brands start on a level playing field. From there, we average the five scores to create the unique SimpleScore assigned to a particular brand’s products or services.
To get the highest SimpleScore possible, a brand would have:
- Few assessed fees
- Excellent customer satisfaction and support (confirmed by third-party data and reviews)
- Generous loan sizes
- Low maximum APR
- Multiple channels of customer support
Best bad credit consolidation loans at a glance
| APR Range | Term | Loan Amount | SimpleScore | |
|---|---|---|---|---|
| OneMain Financial | 18%–35.99% | 24–60 months | $1,500–$20K | 3/5 |
| Avant | 9.95%–35.99% | 24–60 months | $2K–$35K | 3.2/5 |
| LendingClub | 10.68%–35.89% | 36–60 months | $1K–$40K | 3.2/5 |
| Upstart | 8.41%–35.99% | 36–60 months | $1K–$50K | 3.4/5 |
| Upgrade | 7.99%–35.89% | 36 or 60 months | $1,000 to $50,000 | 3.5/5 |
| LendingPoint | 9.99%–35.99% | 24–60 months | $2K–$25K | 3/5 |
| Peerform | 5.99%–29.99% | 12–60 months | $4K–$25K | 2.75/5 |
*Rates accurate as of December, 2020, and exclude autopay discounts.
Best for secured loans – OneMain Financial
OneMain Financial might require you to secure a loan with collateral if you have a poor credit score, so make sure you understand the agreement before you start signing your valuables away.
OneMain Financial provides personal debt consolidation loans to individuals other lenders may not want to work with. Because it is willing to consider riskier applicants, some loans will come with higher rates or require collateral. Secured loans can be a good opportunity to access funding as long as you can pay the bills, or you’ll lose the property at stake. Maximum loan amounts are lower than other lenders and are capped at $20,000. OneMain’s loan terms can be flexible, and you can pay back your loan over two, three, four or five years. Just watch out for fees — origination fees are quite high, up to $400 or 10% of the loan amount, and other fees apply for late payments, insufficient funds and government fees for secured loans.
Best for poor credit – Avant
You can consider Avant to be a savant of debt consolidation; just watch out for the administrative fee when you’re comparing your options.
Avant specializes in debt consolidation loans, so you can trust you’re working with seasoned professionals here. On average, borrowers have a credit score of 600–700, so even those with poor credit can apply to check rates. For a company catering to bad credit, Avant offers a relatively high maximum loan amount at $35,000. Plus, it offers flexible repayment terms of two to five years, so you can decide what works best for your goals and budget.
Best peer-to-peer debt consolidation – LendingClub
LendingClub takes the power from big banks and hands it to individual investors when it comes to debt consolidation loans, which may be more appealing if you want to stick it to the Big Four.
If going through a bank isn’t your cup of tea, peer-to-peer lending might be a welcome switch. Instead of waiting for a financial institution like a bank to fund your loan, LendingClub pools funds from investors to get you your money. This model can lead to getting a better rate on personal loans than with a traditional lender. There are a few downsides to using LendingClub. First, loans need to be fully backed by investors before being paid out. This means you could wait up to two weeks before you actually receive funding, so it’s not a great option if you need cash fast. LendingClub also has strict terms of either three or five years repayment. It might not feel great to have so few options, but since there are no prepayment fees, you’re free to accelerate your repayment if you want and are able to.
Best for large debts – Upstart
If you’ve been rejected by other lenders because of bad credit, Upstart might help you lift your chin up by taking into account more than just your credit score.
Upstart is an AI-powered online lender offering personal loans and debt consolidation to borrowers with less-than-perfect credit scores. Because applicants are evaluated on more than just their credit scores, Upstart is better able to determine how risky a loan could be. As a result, Upstart awards loans to more applicants, with 99% of loans funded just one business day after signing the agreement. Because it can have more certainty when it comes to repayment, Upstart offers one of the highest loan maximum amounts. Not everyone is guaranteed approval for the maximum loan amount, but Upstart does offer loans up to $50,000.
Best for payment management – Upgrade
Upgrade goes one step further for its customers, offering direct payment to creditors, so you don’t have to act as the go-between with your lender and creditors.
Upgrade is a good option when you have better credit, requiring a minimum score of 620 that’s the highest on our list. If your score isn’t that high, the lender will allow you to use a co-signer, which is somewhat of a rarity among debt consolidation lenders. There is also a hardship program if you fall on hard times and need extra help. Just be careful with the origination fee that you will have to pay on your loan, because that can significantly impact how much you pay. Terms run the usual three to five years, and APRs start on the lower end at just below 8%. There are no prepayment penalties, however, so if you run into some extra cash and repay your loan early, there will be no financial repercussions from Upgrade.
Best for flexibility – LendingPoint
To qualify for a loan with LendingPoint, you better be prepared to stand strong on your own because LendingPoint does not allow for co-signers or even secured loans.
A low credit score is OK here if you can prove that you have little debt and regular income. It takes a soft credit check to prequalify, but don’t worry — that won’t impact your score. Terms are competitive with no prepayment penalties if you decide to pay off your loan early. LendingPoint also lets you choose your own payment date, so you can be sure that payments coincide with your paycheck schedule, and there’s the option for payment relief if you need to delay payments up to two weeks. Origination fees vary, however, starting at 0% and running up to 6%, depending on your loan.
Best for marketplace lender – Peerform
Peerform peaks at your bad credit, but accepts borrowers anyway, knowing that everyone needs help from their peers — we mean friends.
Peerform is a good solution for those with poor credit who need a little help getting a loan. To qualify for the lowest rates, however, you will need to stand alone because Peerform doesn’t allow for joint loans or co-signers. While Peerform does charge origination fees, the exact percentage will depend on your credit and debt-to-income ratio. Still, it’s a lot cheaper than other options, charging a sliding scale of 1% to just 5% of your loan. There are no prepayment penalties, so you can pay ahead to save yourself on unnecessary interest.
What is a debt consolidation loan?
Debt consolidation loans are loans that help you pay off debts in a more streamlined manner. You might consider a debt consolidation loan if you have multiple bills that are too expensive and too complicated to keep up with. Instead of paying down different debts with different interest rates (and different due dates), a debt consolidation loan lets you combine those debts into one. Doing so could help you lower your interest rate or simplify your monthly bill payment.
How bad credit debt consolidation loans work
Debt consolidation loans give you money to pay off multiple different debts so you can deal with one simple payment. They’re a good choice if you have several high interest loans that you’d like to combine into one larger loan with a lower APR.
New terms and monthly payments
When you consolidate your debt, you’ll get rid of your old bills and work with your new lender. This means you’ll have new terms and monthly payments laid out at the time of signing your agreement. Before making the switch, double-check to make sure your new terms will be cheaper in the long run.
[Read: Best Personal Loan Rates ]
How to get a debt consolidation loan with bad credit
Getting debt consolidation loans with bad credit may be a tall task as creditors are sometimes wary of lending to those who don’t have the best track record. That being said, it does happen, and you should look to see if you qualify. Here are the simple steps to follow.
- Check your credit reports. Collect copies of your credit report, information on your outstanding loans and income statements or pay stubs for the last year. If you see any discrepancies, dispute them via the credit reporting company.
- Check your rates with several lenders. Do a little research and check your rates with multiple lenders. Checking your rates and pre-approval generally only involves a soft credit check, which will not negatively impact your credit.
- Compare rates and fees. Once you have a couple of offers from different lenders via checking your rates, compare the offers. Which lenders are offering lower APRs and as few fees as possible? Make sure you do a little more research in this step and pick a lender with the most favorable terms.
- Choose your best option. Once you find a lender with the best rates and fees, move forward in the process by filling out the application — which will result in a hard credit check. Once you’re officially approved, review the loan documents carefully and sign when you’re ready.
- Continue making payments. Continue making monthly payments to your previous creditors until the new loan is finalized and funds are dispersed to your bank account or to the accounts you’re consolidating.
[ Related: How to Handle Piles of Credit Card Debt ]
What to do if your financial situation is an emergency
Are debt collectors hounding you daily because your payments are overdue? Unsure of what to do if you need an emergency debt consolidation loan? Here are the steps to take:
- Know where you stand right now. It’s time for damage control. Gather all your debts together so you know what you owe and to whom. Also note the interest rate and other fees you may pay (like a late fee). If you haven’t recently, check your credit score to help you narrow down where you should apply for a bad credit debt consolidation loan.
- Compare debt consolidation loans to find the best fit. Now that you’re armed with your data, start checking your loan options. Compare the origination fees, interest rate, and the final APR (which includes interest rate and any fees assessed). The lowest APR will probably be the best fit, but be sure you can realistically pay it back based on the outlined loan terms.
- Get out of debt. Once you’ve been approved, get your plan of attack ready so you can beat down the debt. Check if there are any discounts available for autopay and pay it off as quickly as you can (watch for prepayment penalties).
[ More: Sesame is a New Health Care Marketplace for the Uninsured ]
Where to get a debt consolidation loan with bad credit
Even with bad credit, you still have options when getting approved for a debt consolidation loan. These days, there are more options available than just banking institutions and credit unions. With these lenders, you may have access to larger loans, but you have to watch out for fees and higher APRs.
Online lenders have the advantage of offering lower APRs and less fees as they don’t have the extra overhead of a brick-and-mortar business. However, online lenders may have higher origination fees or other factors that can drive up APRs.
[ Next: How to Improve your Credit Score Fast ]
With peer-to-peer lending, investors fund the debt consolidation loan rather than a bank. Each platform does this differently, with some allowing a single investor to fund it entirely while others choose to pool the investment among several investors. They put the risk on the investor and the platform collects a fixed fee.
Depending on your credit score, it’s worth it to compare traditional banks and credit unions to online lenders, to see what the final APR and payment terms are. Secured loans can have better terms, but you’re at risk of losing your asset if you default. Making a comparison will help you determine which debt consolidation loan is best for your budget.
What to avoid with debt consolidation loans
While debt consolidation may seem appealing with the potential for simplicity, lower monthly payments, and lower rates, there are things you need to be careful to avoid.
First, make sure you’re getting a debt consolidation loan and not agreeing to a debt settlement. Debt settlements are where lenders will advise you to stop making payments on all of your loans and instead make payments into a separate account. After a specific period of time, the lender will contact your creditors and attempt to negotiate to pay off your debt for a lower amount. Not only does this run the risk of not working and leaving you in a worse situation, but it is also detrimental to your credit. One late payment can drastically bring down your overall score.
How to manage your debt consolidation loan
One of the most critical elements of working with a debt consolidation loan is ensuring you don’t repeat the problem and rack up more debt. After your new loan is approved, your current loans and credit cards will be fully paid off and back to a $0 balance.
Do not look at this as an invitation to start spending again. If you start racking up additional charges, you’ll be doing nothing but making the problem worse. You’ll now owe on the new loan for all your old debt, and whatever you’re charging on your credit card. If you have to cut up the credit cards or hide them from yourself, do it. Debt consolidation loans can only help if they are coupled with good financial discipline.
Alternatives to debt consolidation loans
Snowball method
The snowball method comes from Dave Ramsey’s book Total Money Makeover, and it was designed to help you pay off more and more debt until you’re finished. Instead of lumping your debts altogether like with consolidation, you would continue paying the minimum on all debts and chip in as much extra as you can into the smallest debt. Once that one is paid off, you’d make extra payments to your next highest debt and continue the process until all are done. The result? More and more dollar power as you approach each larger debt, and a motivational boost when you finally pay off each debt.
Avalanche method
The debt avalanche method is similar to the snowball method, but it focuses on interest rates instead of remaining balances. In this method, you would continue making minimum payments and chip in extra to the loan with the highest interest rate first. This method is beneficial because it helps you chip away at your higher interest loans first. In the end, you’ll have paid less interest with this approach.
[ Read more: How to Create Your Own Debt Repayment Plan ]
Budgeting
Budgeting gives you the power to understand your current financial information. First, figure out how much money you’re currently spending, and on what. Then, figure out how much money you need to spend on things like bills, essentials and debts. Budgeting can help you figure out if you’re spending too much on something that’s unnecessary. If that’s the case, you can readjust your spending to focus on debts instead. Maybe you can cancel one of your streaming subscriptions, or trade takeout for home-cooked meals every so often.
Negotiating with creditors
If you experience a hardship in life, your creditor may be willing to work with you. You could benefit from payment extensions or waived fees, which can save you a ton of money off your total bill. It is important to do everything possible to avoid collections, so you don’t cause serious damage to your credit score. Often, creditors will be willing to work with you if you tell them what’s going on.
Pros and cons of debt consolidation
| Pros of debt consolidation | Debt rolled into one monthly paymentGenerally lower interest ratesCan help improve credit score |
| Cons of debt consolidation | Have to reapply for a loanHard credit check requiredMay have higher fees |
How to choose the best bad credit debt consolidation loan for you
- Understand your credit score and how much you need to borrow. Even though some lenders specialize in providing consolidation loans to people with bad credit, if you have time to boost your credit score a little, you could end up with a better rate on a loan. Make sure you know what credit score is required for any lenders you are interested in.
- Compare debt consolidation loans. The best way to compare loans is by looking at the total loan amount, repayment terms and APR. It’s important to make sure the monthly payments and schedule work for you, but the APR tells you what the additional cost of the loan is. The lowest APR will likely be the best deal for you.
- Start repaying. Make sure you understand your repayment terms and stick to them. Some companies offer (or even require) automated direct debit for payments or charge for check processing fees.
Debt consolidation FAQs
Debt consolidation is a tool available to those with lots of debt, but it’s not the only solution. The most important thing is to consolidate responsibly: don’t accept any terms you know you can’t meet.
You can consolidate as much debt as you get approved for. Most personal loan lenders offer maximum amounts from $20,000 to $50,000, but how much you consolidate should depend on what new payment plan you can afford and the APR.
Debt consolidation loans can hurt your credit score in the short term but help in the long term. Even though an initial quote won’t affect your score, lenders do a hard inquiry when you decide to move forward with a loan. Hard inquiries do cause a dip in credit scores, but if the loan is helping you stay current with your bills and pay off your debts, it’ll help in the long run.
Unfortunately, you can be denied for debt consolidation if you are unable to meet a lender’s qualifications. Reasons for a denial could include having too low of a low credit score, having too high of a debt-to-income-ratio or simply not making enough to qualify for the extra loan payments.
Avant has the lowest minimum credit score among our top picks for best debt consolidation loans, but OneMain has made a name for itself for its willingness to work with borrowers who have poor credit. There are some lenders who will work with you if you can demonstrate that you are able to make the required monthly payments.
Too long, didn’t read?
Debt consolidation loans can be favorable for some borrowers, especially in times when rates are low. However, a bad credit score may limit the options you have and may raise the cost of borrowing. The only way to determine whether it’s a good fit for you or not is to collect your information and begin talking to potential lenders. Clearing your debt and recovering your credit score will take time, but fully utilizing the financial options at your disposal can help to speed up the process and ensure success.
We welcome your feedback on this article and would love to hear about your experience with the bad credit debt consolidation loans we recommend. Contact us at inquiries@thesimpledollar.com with comments or questions.
Keep Reading
Methodology
The SimpleScore is a proprietary scoring metric we use to objectively compare products and services at The Simple Dollar.
For every review, our editorial team:
- Identifies five measurable aspects to compare across each brand
- Determines the rating criteria for each aspect score
- Averages the five aspect scores to produce a single SimpleScore
Here’s a breakdown of the five aspect scores and their rating criteria for our review of the best personal loans of 2020.
Why do some brands have different SimpleScores on different pages?
To ensure the SimpleScore is as helpful and accurate as possible, we developed unique criteria for every category we compare at The Simple Dollar. Since most brands offer a variety of financial solutions, their products and services will score differently depending on what we’re scoring on a given page.
However, it’s also possible for the same product from the same brand to have multiple SimpleScores. For instance, if we compare NetCredit’s personal loans according to our criteria for the best personal loans, it scores a 2.3 out of 5. But when we compare NetCredit according to the criteria for the best bad credit personal loans, it scores considerably higher, since the criteria for the latter review are more lenient (lenders who serve borrowers with bad credit will always offer higher rates, so we needed to adjust our category methodology to account for different industry standards).
Questions about our methodology?
Email Hayley Armstrong at hayley@thesimpledollar.com.
Rates
We looked at the maximum APR for each lender — the lower their maximum rate, the higher their score.
Loan Size
We awarded higher scores to lenders with more generous loan sizes.
Customer Satisfaction
We leveraged the J.D. Power 2019 Personal Loan Satisfaction Study℠ to see how customers rated their experience with each lender. (If a lender wasn’t included in J.D. Power’s study, we skipped this aspect and averaged the four remaining aspect scores.)
Support
We awarded higher scores to lenders with the most channels for customer support.
Fees
We looked at the three most common fees — origination, late payment, and pre-payment — and penalized lenders for each fee charged.
Reviewed by
Courtney Mihocik
Loans EditorCourtney Mihocik is an editor at The Simple Dollar who specializes in personal loans, student loans, auto loans, and debt consolidation loans. She is a former writer and contributing editor to Interest.com, PersonalLoans.org, and elsewhere.
