With this type of loan, the lender issues one personal loan that you can use to pay off personal debts such as the balances you have on high-interest cards. You only have to pay a fixed, monthly installment to your lender for a set period, which is typically 2-5 years. The rate of interest depends on your credit score and does not change for the duration of your payment.
This kind of loan is a good option if you:
– Avoid incurring more debt while paying off what you owe
– Cannot keep up with several smaller payments
– Can find a loan with a cheaper rate of interest than your current debt
If you opt for a debt consolidation loan, you should pay attention to:
– The fees that your new lender will charge
– Whether you will be given a lower rate of interest for having a cosigner
– The support offered by the lender, such as the ability to pay creditors directly
Do you have good credit? You should consider applying for a zero percent credit card that allows you to transfer your current balances to it: doing so can save you plenty of money. However, this type of credit card takes discipline if you want to pay it off before the promotion expires. Moreover, the amount of credit that you can transfer to a 0 percent APR card is limited – usually no more than 15,000 dollars.
Once this introductory rate expires, the rate of interest will be higher than that of a personal loan. When using a 0 percent APR card, you have to avoid the temptation of making any other charges at that time. On the other hand, a personal loan offers quite a few advantages such as fixed payments, which ensure that you repay your debt within a specific time.
Moreover, taking out a personal loan might improve your credit. If you use all the available credit on your cards, your credit score might take a hit. However, personal loans are treated differently because they are reported as installment debt while cards are revolving debt.
You can find a personal loan from your local bank, credit union, or an online lender. You should start by visiting a credit union because they offer flexible loan terms as well as lower rates of interest. If you decide to go with an online lender, make sure that he is reputable.
Most reputable online lenders have an APR of 5-36 percent and offer the best rates to people with good credit. If you have a poor credit score, you should expect to pay higher rates of interest. Every lender has his guidelines for approving borrowers.
When choosing a lender, APR is the most important factor that you need to consider. It will determine whether taking out the loan makes any sense financially.
You should look at the following features when comparing lenders:
Does the lender let you pay down debt? – Some lenders allow good credit borrowers can pay their creditors directly, which increases their chances of paying off debts successfully. However, not all online lenders offer this feature.
What are the lender’s fees? – Most lenders charge an upfront fee, which ranges from 1-6 percent of the amount that you request. Because some online lenders subtract the fee upfront, you will not get the amount that you requested. For this reason, you should check with the lender before accepting any loan.
If you do not qualify for a normal loan, consider looking into unsecured personal loan debt consolidation companies.