What makes a great debt-consolidation lender?
So where can you get the best deal on a debt consolidation loan to consolidate your debt? Which rates and terms are the best—and which lenders are trustworthy?
We’ve developed relationships with several key lenders that we’ve put through an exhaustive screening process. Some factors we’ve researched include:
- Their interest rates—and how they compare with competitors
- Their repayment terms and options
- Discounts offered
- Penalties and fees
- Customer service
- Lender history and reputation
What to look for in a debt consolidation loan
When it comes to a debt consolidation loan, how do you know when you’re looking at a great deal? Here are a few factors to take into account:
Interest rates
Different lenders will offer you different rates depending on your credit score, earning potential, and other factors. The best way to compare rates is to fill out an application on their website and get a custom quote. Most lenders will do a “soft pull” on your finances to find out your credit history, which will not impact your credit score.
Fixed vs. variable rates
Most personal loans have a fixed interest rate—meaning the rate stays the same throughout your loan period.
However, some lenders also offer loans with a variable interest rate that changes month by month based on market fluctuations. They’re usually based on the U.S. prime rate, a baseline rate for loans issued in America.
Fixed rates make it easier to plan your finances on a monthly basis—while a variable rate can add some unpredictability to the mix. However, variable-rate loans tend to start out with lower interest rates overall. Some have a maximum limit, but if you opt for a variable rate loan, it’s important to check.
Repayment terms
Terms can vary depending on the lender. However, many personal debt consolidation loans take approximately three to five years to repay.
Some lenders don’t offer personal loans under or over a certain amount. There’s a wide range of limits out there; some banks won’t loan more than $25,000 in personal loans, while others will go up to $100,000 or more.
By contrast, some banks may have minimum limits of $1,000, $10,000, or no minimum limit at all. However, small loan amounts may include very high interest rates and fees—so be aware.
Fees and penalties
Fees and penalties can add up quickly, increasing the cost of your loan over time.
Some typical fees and penalties include origination fees, prepayment fees, and additional fees for bounced checks and late payments. A few lenders may charge a fee for applying for a loan, or for paying by check.
Discounts
Some lenders offer discounts off your interest rate for things like setting up automatic payments, opening a checking account with the same lender, or making 12 on-time payments.
Determining your eligibility for a debt consolidation loan
Lenders have different criteria for assessing your eligibility. These include your current debt level, credit score, debt-to-income potential, and current income.
Interest rates and fees: how much a debt consolidation loan costs
One key consideration is how much your new debt consolidation loan costs. There are a few variables to take into account.
Interest rates
Your interest rate, or APR, is the amount you pay every month on top of the original amount of the loan. Most personal loans have fixed rates that stay the same through the life of the loan. A few have variable rates, which change based on market fluctuations.
Calculate the average of all interest rates on the loans you plan to consolidate. Ideally, your new debt consolidation loan won’t have an interest rate higher than that.
However, your interest rate isn’t the only thing that determines how expensive your loan is.
Fees
Many lenders charge flat fees for various services. These are usually charged only once, or when you need the specific service. A few common ones include:
- An origination fee for drafting your loan: these may range from 0% to 8% of the amount of your loan.
- An application fee: Some lenders charge a fee to review your loan application. It’s often nonrefundable, even if the lender opts not to offer you a loan.
- A check processing fee: Some lenders try to encourage you to set up direct deposit by charging fees for processing your checks. This fee is usually a flat rate; it can be as much as $7 per check.
Penalties
Some lenders charge penalties for various transgressions as well. These may be flat amounts, or a percentage of your payment. Some common penalties include:
- Prepayment fees: Some lenders charge you more for paying your loan off before the deadline.
- Late fees: There may be a fee for not paying your bill on time. It can be a flat amount or a percentage of your payment.
- Bounced-check fees: These are charged when you don’t have enough in your bank account to cover your loan payment check.
Our review of the top lenders
Still not sure how different lenders stack up? Here’s a point-by-point comparison of our top lenders.
Named one of the “best banks in America” by Money magazine, Citizens is a consistently solid choice for a debt consolidation loan. Even though it’s one of the nation’s oldest and largest financial institutions, Citizens has shown a commitment to being at the cutting edge of technology, offering both convenience and stability to their customers. Plus, Citizens has an excellent record of civic responsibility and engagement. Their staff provides more than 85,000 hours of volunteer time each year to various causes, including teaching financial literacy in the communities they serve. So it’s a bank you can feel good about doing business with.
Key features of a Citizens Bank debt consolidation loan:
- Borrow from $5,000 to $50,000.
- Lenders' rates fluctuate all the time based on market conditions, but Citizens has a rock-solid history of offering some of the lowest interest rates available at any given time.
- On top of already low interest rates, you can take advantage of multiple discount opportunities. If you sign up for automatic payments, Citizens Bank will reduce your interest rate by 0.25%. And, if you’re already a Citizens Bank customer, you can qualify for an additional 0.25% loyalty discount..
- Get a fast, easy rate quote that won’t ding your credit. You can get a rate estimate without completing a full loan application. The process takes just two minutes, and it has no impact on your credit score.
- No need to worry about fees. Citizens Bank doesn’t charge application fees, annual fees, or even late fees.
The folks behind SoFi, which stands for “social finance,” feel your pain when it comes to debt. The company was created by a group of Stanford business students who found themselves with a mountain of debt after graduation. Today, they offer a variety of lending products through their online platform.
Key benefits of a SoFi debt consolidation loan include:
- Borrow up to $100,000 — a higher maximum loan amount than offered by most other lenders.
- Complete your application online. SoFi is all about making the lending process fast and easy.
- If you’re a highly qualified borrower and you take advantage of available discounts, you could score an interest rate as allow as 5.99%, as of September 2019.
- If you lose your job through no fault of your own, SoFi may allow you to deter payments temporarily until you get back on your feet. (However, it’s important to note that interest will continue to accrue during the non-payment period.)
Marcus is the retail banking arm of finance giant Goldman Sachs. Founded in 2016, Marcus currently focuses on two things: high-interest savings accounts and debt consolidation loans. By tightly focusing on these two areas, the company is able to offer highly customized financial products.
Key benefits of a Marcus debt consolidation loan include:
- Award-winning customer service. The company was named #1 in customer satisfaction by J.D. Power.
- After 12 consecutive on-time payments, you have the option to defer one monthly payment with no additional interest or fees.
- Personalized loan options based on your desired payment term and monthly payment. Their handy online calculator can help you determine how much you need to borrow, and help you design a payment plan that will set you up for success.
Lighstream is the digital banking arm of SunTrust Bank. It was founded with the vision to simplify the lending process for borrowers with good to excellent credit. If you have a high credit score and a solid income history, Lightstream is definitely worth taking a look at.
Key benefits of a Lightstream debt consolidation loan:
- If you have excellent credit, you could qualify for loans up to $100,000. (However, it’s important to note that your online application will involve a hard credit pull, so do a little homework on qualifications before you apply.)
- As part of its Rate Beat program, Lightstream says it will beat any competitor’s interest rate by 0.10% if you can show that you’ve been approved for a loan of identical terms.
- It’s possible to apply, be approved, and receive your money all on the same day.
Laurel Road has small-town roots, but it has grown into a national online lending powerhouse. In fact, it was one of the first lenders to completely digitize the loan process using proprietary technology. Expect a seamless online experience if you decide to take a out a loan from Laurel Road.
Key benefits of a Laurel Road debt consolidation loan:
- • Borrow up to $45,000.
- • Apply online and get the money disbursed right into your bank account.
- • Get 0.25% knocked off your interest rate when you sign up for automatic payments.
Best Egg is an online-only lending platform that was conceptualized by veterans from the banking industry who wanted to bring a tech-startup vibe to online lending. The goal: make banking easy for the way that people live today.
Key benefits of a Best Egg debt consolidation loan:
- APRs start as low as 5.99% for highly qualified borrowers.
- Borrow from $2,000-$35,000.
- There are no prepayment penalties.
- About half of approved applicants get their money within 24 hours of approval.
- You can get a no-obligation pre-approval online without a hard pull on your credit.
FAQs about debt consolidation loans
Q: How do I apply?
Most lenders have an online application and some may even allow you to apply over the phone. Some information you may need includes:
- • Tax returns
- • Information on your employment and income
- • Bank statements
- • Legal identification and basic info about yourself (address, social security no., etc.)
Q: How long does it take to get approved?
You can often a preliminary approval in minutes. However, the official approval may take a few days to a week, depending on whether the lender needs additional information from you.
Q: Is a fixed or variable interest rate better?
There are pros and cons to each, but most people find that a fixed rate is preferable because the interest rate stays the same over the life of your loan. That’s good news if you want to keep your monthly payment the same and predictable. This is often better for long-term loans.
Variable rates fluctuate based on the market. Depending when you apply, you may start off with a lower interest rate but it may change over time. Often, variable rates work better for shorter-term loans that can be paid off quickly.
Q: How much can I borrow?
Most lenders have minimum and maximum limits, and they’re all different. A typical range may be from approximately $5,000 to $50,000, but you may be eligible to borrow more if you have a strong credit score and income.
Q: How soon will I get my check after the loan is approved?
This depends on your lender. Some may promise your cash within 24 hours, however, two to three days is more typical. Some lenders may take as long as a week or even a month. This could be an important consideration if you need access to your funds quickly.
