Although it may seem counterintuitive to take on new debt to address old debt, many borrowers have found consolidation loans to be an easier and less expensive way to pay off credit cards. The goal in consolidating debts in this manner is being able to reduce multiple monthly payments to just one loan payment — as well as decreasing the amount you must pay in interest charges over the life of the loan. Reaping these benefits from a debt consolidation loan depends first on qualifying for a competitive one — which, of course, means researching different offers and applying for the most fitting option based on your specific financial situation.
What can you expect from the application and approval process? Here’s more on the ins and outs of qualifying for a debt consolidation loan.
Getting Approved for a Debt Consolidation Loan
The most influential portion of a consolidation loan application is credit history. Lenders use credit score as a sort of barometer to gauge borrowers’ likelihood of paying back the money they borrow. A higher credit score lowers your risk level from the perspective of lenders; a lower credit score indicates you may be a higher risk for skipping payments or even defaulting on the loan.
As Experian points out, good credit gets you access to the widest array of loan options. Some consolidation lenders even set a minimum credit score for borrowers. Furthermore, strong credit compels lenders to offer more competitive interest rates — the factor that ultimately determines whether or not it’s worth it to take on a consolidation loan. Depending on the size and duration of the loan, these differences in interest rate offerings can lead to hundreds or even thousands of dollars in savings. In this way, having strong credit quite literally pays off.
There is good news for borrowers with less-than-stellar credit, though. Today a wider variety of lenders than ever offer consolidation products, from local credit unions to online lending companies. If you don’t qualify for one loan offer, you may very well qualify for another — but you’ll have to shop around to fully explore your options.
Online-only lenders in particular often allow borrows to view personalized offers with just a soft credit inquiry, meaning it won’t affect your score to find out more information. However, it’s also worth exploring debt consolidation near me to see if you qualify for competitive offers from local lending institutions as well.
Tips for Strengthening Your Consolidation Loan Application
Since credit is the most influential factor in qualifying for a consolidation loan, anything you can do to improve your credit score will go a long way toward helping you get the best offer possible.
Knowing your credit score is the first step. Request free copies of each of your three reports from TransUnion, Experian and Equifax to scan them for errors — then dispute any errors you find.
Pay off any late balances you have outstanding and do everything you can to pay down existing debts ahead of applying for a loan. Lenders will also look at the ratio between your debts and your income when deciding whether or not to approve your loan application, so bringing down your current balances will help in this regard.
Qualifying for a debt consolidation loan — one that’ll actually accomplish the goal of making it less costly and less cumbersome to repay your debts — depends heavily on your credit profile and current debt load. Before you apply, do everything you can to strengthen these important points of consideration. Always consider offers from a variety of lenders both online and in person so you’re choosing from the largest possible pool of loan products.