Best Debt Consolidation Loans
A debt consolidation loan can be a useful vehicle for organizing outstanding debts and reducing costs, but the usefulness of this approach comes down to the details. The cost-effectiveness of a debt consolidation loan depends on the rates and repayment terms available, and the availability of this option depends on your ability to get approved for a loan.
To help you find the best options for debt consolidation loans, LendingTree analyzed lending requests for the month of September 2017 to determine two things: which lenders provided the lowest annual percentage rates (APRs) and which closed the most loans during the period. Since the best-performing lenders varied according to different credit score levels, LendingTree grouped the results in four categories: excellent credit (a score of 750 or higher), good credit (700-749), fair credit (650-699) and poor credit (below 650).
Based on this analysis, the table below shows the top two lenders in each of the four credit categories. Note that rates and loan terms are subject to change at any time, as is performance relative to other lenders.
|Best Debt Consolidation Loans By Lender|
|Lender||Credit Category||Best Performing Credit Score Range||Origination Fees||Loan Amounts||Overall APR Range||Length|
|Marcus by Goldman Sachs®||Excellent||750+||$0||$3,500 – $30,000||6.99% – 24.99%||36 to 72 months|
|LightStream||Excellent||750+||$0||$5,000 – $100,000||3.24% – 17.49%* with autopay||24 to 84 months*|
|Discover Personal Loans||Good||700 – 749||$0||$2,500 to $35,000||6.99% – 24.99%||36 to 84 months|
|Freedom Plus||Good||700 – 749||0% – 5%||$10,000 to $35,000||4.99% – 29.99%||24 to 60 months|
|Upgrade, Inc.||Fair||650 – 699||1% – 5%||$1,000 – $50,000||5.66% – 35.97%||36 or 60 months|
|Best Egg||Fair||650 – 699||0.99% – 5.99%||$2,000 – $50,000||5.99% – 29.99%||36 to 60 months|
|LendingClub||Bad||Below 650||1% – 6%||Up to $40,000||5.99% – 35.89%||36 or 60 months|
|Avant**||Bad||Below 650||1.50% – 4.75%||$2,000 – $35,000||9.95% – 35.99%||24 – 60 months|
Rates as of Feb. 22, 2018.
*The APR listed 3.24% APR is for an unsecured boat, RV or aircraft loan between $10,000 and $24,999 with a term between 24 and 36 months, for applicants with excellent credit. Your APR may differ based on loan purpose, amount, term, and your credit profile. Rate is quoted with AutoPay discount, which is only available when you select AutoPay prior to loan funding. Rates under the invoicing option are 0.50% higher. Subject to credit approval. Conditions and limitations apply. Advertised rates and terms are subject to change without notice. Payment example: Monthly payments for a $10,000 loan at 3.24% APR with a term of 3 years would result in 36 monthly payments of $291.87.
**”Avant branded credit products are issued by WebBank, member FDIC.
By “best-performing”, we mean that borrowers in these credit bands (excellent, fair, poor, etc) scored loans with the lowest interest rates with these lenders. Keep in mind lenders are willing to work with people with a variety of credit scores, so just because a lender is in our “excellent credit” category does not necessarily mean they won’t work with people with lower credit scores. It just means that based on our data from LendingTree’s personal loan marketplace, we found that people in these credit score bands got the lowest
Best debt consolidation loans for excellent credit (750+)
● Marcus by Goldman Sachs®
This is an arm of the venerable Wall Street investment banking firm whose history goes back 148 years. Whereas Goldman Sachs Bank USA has historically catered primarily to high-net-worth and institutional clients, Marcus is geared specifically towards the needs of retail banking customers.
Marcus offers high-yield savings accounts and loans, with an emphasis on debt consolidation loans. With respect to those loans, their niche can be described as lending to people who have run up enough debt that they need to reduce interest rates and organize those debts, but who are not so burdened with debt that they have damaged their credit history.
In that vein, Marcus specializes in unsecured loans to people with good credit. Their loans have no origination fees, which means borrowers can get a debt consolidation program underway without having to take a step back financially before moving forward. Their loan rates are fixed, making monthly payments predictable and manageable. Borrowers can apply either online or via a paper application, and the Marcus website has a handy tool that allows borrowers to adjust the target loan amount and desired monthly payments before seeing loan options.
LightStream is a division of SunTrust Bank, a financial institution with over 1,000 branches concentrated in the southeastern United States. LightStream is dedicated to providing an online lending platform for consumers throughout the country.
LightStream offers an extraordinary range of both loan amounts and repayment periods, giving consumers an unusually detailed ability to customize their loans to their needs. Their website clearly lays out a table of loan options based on the purpose of the loan you specify.
Loans from LightStream have no origination fees, and their low-end rates are very competitive. However, be advised that your annual percentage rate will be 0.50 percentage points higher if you do not use their auto-pay feature.
Like many online lenders, LightStream tries to use speed to appeal to potential borrowers, offering same-day approval and funding in some cases. They also offer two noteworthy programs that show their confidence in their lending process and products.
One such program is their Loan Experience Guarantee, which offers people who borrow through LightStream a $100 rebate if they are not satisfied with the borrowing process. The other unique program LightStream offers is their Rate Beat Program, which promises to beat any other rate for a comparable loan by at least 0.10 percent.
Best debt consolidation loans for good credit (700-749 )
● Discover Personal Loans
Discover is a well-known credit card company, but some may not realize that it is also a full-fledged bank, offering checking accounts, savings accounts, loans, and more. Among the different types of loans offered by Discover Bank are personal loans.
Discover’s personal loans have a fixed interest rate and term. One factor that makes them attractive to customers is they there is no origination fee or any other fee for getting a personal loan with Discover, as long as you always pay on time.
After you apply for a Discover personal loan, you could get your decision back within minutes and if approved, receive funds the next business day. They also offer a 30-day money-back guarantee. This means you have 30 days after your loan is funded to cancel and return the funds if you’re not satisfied. If you do this, you will not be charged any interest and the loan will be canceled.
● Freedom Plus
Freedom Plus is an online personal loan lender that is affiliated with the Freedom Financial Network.
Freedom Plus loans are available with rates as low as 4.99%. But in order to qualify for this low interest rate, their website states that “a borrower will need excellent credit on a loan of $15,000 with a term of 24 months, and qualify for at least two of the following discounts: (1) add a co-borrower who has sufficient income; (2) use at least fifty percent of the loan proceeds to directly pay off existing debt; or (3) show proof of having at least forty-thousand dollars in retirement savings.”
The APR you receive on your loan includes all loan fees, including the origination fee, which may be between 0% and 5 %.
Freedom Plus also uses speed to appeal to customers, stating that same day loan decisions are available and if approved, the funds can be in your account within 48 hours. They also state that the only information necessary to apply is your signature, a valid ID, and verified income and bank account.
Best debt consolidation loans for fair credit (650 – 699)
● Upgrade, Inc.
Upgrade is a lending platform designed by two co-founders of LendingClub, with the focus of the Upgrade platform being on giving consumers a convenient credit management resource. Toward this end, Upgrade offers both personal loans and credit monitoring.
In keeping with the goal of convenience, Upgrade offers a one-page application process. This will generate a series of loan options for you, specifying the length and rate for each possibility. If you choose one of these options, Upgrade promises to have the loan proceeds transferred to your bank within a day of completing its verification process.
Continuing on the theme of convenience, Upgrade allows you to automate payments from your bank account, and even lets you pick the due date cycle. So, for example, you could coordinate payments with the timing of your wages or other income.
On the downside, this convenience may come at a bit of a price. Upgrade charges origination fees that may be anywhere in a range of 1 to 5 percent, so if your fees are in the higher end of that range it would add considerably to the cost of your loan.
● Best Egg
Best Egg is a lending platform that matches borrowers with investors who are willing to loan money in order to earn interest on those loans. This type of investor-funded lending is often a viable choice for borrowers with less-than-ideal credit histories.
Best Egg’s value proposition is that they can speed the process of matching borrowers with investors by having already lined up investors who are ready to fund loans that meet certain parameters. Thus, like many online lenders, Best Egg is able to offer not only a streamlined application process but also funding within one business day in some cases.
While the low-end of Best Egg’s rate range is very competitive, borrowers should take care to ascertain the specific rates that would apply to them before committing. That is sound advice when working with any lender, but it is particularly relevant with Best Egg because they have such a wide range of loan terms.
For example, origination costs from Best Egg can be anywhere from 0.99 percent to 5.99 percent. At the high end that is unusually expensive, and contributes to the rather pricey high end of the APR range offered by Best Egg, which spans from 5.99 percent to 29.99 percent.
Another condition that depends greatly on your circumstances is that while Best Egg offers an overall loan amount range of $2,000 to $50,000, the minimum is higher in some states, and the maximum amount is $35,000 unless you have an income of at least $150,000 per year.
Best debt consolidation loans for bad/ poor credit (Below 650 )
Note: If you have a credit score less than 640, struggling to make monthly debt payments and would like to explore your options to reduce your debt by up to 50%, then please click here.
LendingClub has been a pioneer in peer-to-peer lending, which involves using a technology platform to match borrowers with investors who fund their loans. In particular, this has become a viable option for borrowers with poor credit records, who might not be able to meet the underwriting standards of a traditional bank.
The process at LendingClub involves a soft credit check, which is one that won’t affect your credit score. Based on that, you will receive loan offers that you can decide whether or not to accept. The offers available from LendingClub are more limited than from many other lenders, with loans available only in lengths of 36 or 60 months.
Another apparent limitation of LendingClub is that they advertise their process as taking seven days, compared with the one-day turnaround offered by some other online lenders. However, since debt consolidation should be part of a long-term budget discipline rather than a snap decision, this timing difference should not be too big a problem.
What may be more of an obstacle at LendingClub is the cost, because the upper end of their APR range is very high. This is partially due to their high origination fees, which range from 1 to 6 percent but average 5.49 percent. Peer-to-peer lending may be the only option available to people with poor credit records, but you should think carefully whether it would actually represent savings in the long run.
Avant offers fixed-rate, unsecured debt consolidation loans, as well as home improvement and emergency loans. Their stated goal is to use analytics to lower barriers and reduce costs in online lending, but with an APR range that can go as high as 35.99 percent, whether or not they actually succeed in lowering costs would appear to depend very much on the terms you are offered.
Avant allows you to choose a term of two, three, four or five years, so you can structure your loan to minimize long-term costs (which would involve a shorter loan) or minimize monthly payments (which would involve a longer loan).
One thing that undermines the more cost-effective approach of a shorter loan is that Avant’s origination fees, which range from 1.50 percent to 4.75 percent, can be somewhat pricey. Since origination fees are a one-time cost spread over the life of the loan, they have a particularly large impact on the APR of a shorter loan.
If you do some comparison shopping and conclude that Avant is a cost-effective debt consolidation option, their website offers a user-friendly experience. This includes an online application, a soft credit inquiry that won’t impact your credit score, funding as quickly as one day upon approval and live support via phone, email, or chat.
Learn more about debt consolidation
Before you start hunting for a loan, here are some basics of debt consolidation to help you decide if it is right for you:
What is debt consolidation?
Debt consolidation involves turning multiple debts into one debt by obtaining a new source of credit, such as a consolidation loan, to pay off existing debt.
Ideally, debt consolidation can accomplish some or all of the following:
- Lower current interest rates
- Lower long-term borrowing costs
- Organize payments
- Reduce monthly payments
Each of the above objectives should be evaluated when considering any debt consolidation strategy.
A potential downside of a debt consolidation loan is that in some cases extending your repayment period might lower your monthly payment, but this can cause you to pay more interest over the life of the loan. Another concern is that by clearing your credit card balances, you may simply be paving the way for continued overspending unless your debt consolidation program includes putting a new household budget discipline in place.
How to find the best debt consolidation loan
As you may have noticed when looking at the table of lender information, loan terms and costs can vary greatly depending on your credit status. So, don’t make any decisions about a debt consolidation loan until you have a specific quote for your situation.
Once you obtain a quote, some key things to look at in evaluating debt consolidation loan offers include the following:
- Is the APR lower than the rate I am currently paying?
- Can I afford the monthly payments?
- What will be the total cost over the life of the loan?
Knowing the answer to those questions will help you see which is the right debt consolidation loan for you and whether debt consolidation is a strategy that makes sense for your situation.
How does debt consolidation affect credit scores?
The goal of debt consolidation may be to improve your credit history, but in the short-term, it may actually hurt your credit score. This is because adding a new source of credit might count against you, and even applying for credit can have a negative impact on your score.
You may notice that some lenders advertise doing a “soft credit inquiry” which won’t affect your credit score. To minimize the impact of debt consolidation, whenever possible try to get rate quotes that involve soft inquiries, and minimize applications that involve hard inquiries unless you have obtained enough specific rate information to be confident that the lender will be a good option for you.
Alternatives to debt consolidation loans
Besides debt consolidation loans, there are other ways to consolidate debt including:
- Balance transfer credit cards. These often include special offers with rates as low as 0 percent for a limited period of time. Just watch out for balance transfer fees, and make sure you are aware of what happens to the interest rate after the introductory period ends.
- Home equity loans or lines of credit. Borrowing against the equity in your home can be the lowest-cost form of a debt consolidation loan if you have sufficient equity to qualify. Of course, since the equity in your home is used to secure the loan, you must be especially sure of your ability to repay before taking this approach.
- Cash-out refinancing. The issues here are similar to those with home equity loans, with the added consideration that refinancing your existing mortgage makes the most sense if you can lower your interest rate in the process. People sometimes refinance to lower their monthly payment by stretching their remaining balance out over a longer period but bear in mind that this may result in you paying more interest in the long run.
- Borrowing from retirement plans. If you have a balance in a 401(k) or 403(b) retirement plan, your employer’s plan may let you borrow against it. However, you have to pay the balance back with interest within five years or face pretty onerous tax consequences. Also, this approach can impede building a retirement nest egg by causing you to miss out on investment growth and new contributions while you are paying back the loan.
Debt consolidation can be an effective financial management technique, but it is not a cure-all. Be sure to make a plan for getting out of debt, choose the type of credit you use carefully and then shop for the best lender terms for that type of credit.