Debt consolidation loan rates for February 2022
Consolidating debt with a personal loan can simplify your debt repayment journey, and it can also save you money if you get a lower interest rate than your existing debt rates.
Typical interest rates on debt consolidation loans range from around 6% to 36%. To get a rate at the bottom of this range, you will need an excellent credit score (720 to 850 FICO). But even a good credit score (690 to 719 FICO) could help you get a better rate than you currently have.
Borrowers with fair credit (630 to 689 FICO) and bad credit (300 to 629 FICO) may not be able to qualify for a lower rate than their current debts. Build your credit can improve your chances of qualifying in the future.
Current Debt Consolidation Loan Interest Rates
Interest rates and terms may vary depending on your credit score, debt to income ratio and other factors.
25.3% (lowest scores are unlikely to qualify).
Source: Average rates are based on aggregated, anonymized bid data from pre-qualified users in NerdWallet’s Lender Marketplace from July 1, 2020 through July 31, 2021. Rates are estimates only and are not specific to any lender.
How does debt consolidation work?
If you have several debts — for example, if you have balances on several different credit cards — you can get a debt consolidation loan to pay them all at once. Then you make a payment for the new loan.
But how does it save you money? The main thing is to choose a personal loan with a annual percentage rate it’s less than your existing debts.
Let’s say you have total credit card debt of $9,000 with a combined APR of 22% and a combined monthly payment of $450. It will take just over two years to be debt free and cost $2,250 in interest.
But if you consolidate the cards into a loan with an APR of 14% and a repayment term of two years, you’ll save $879 in interest. Your new monthly payment would be $432, and you could apply the extra monthly savings to the loan to pay off the debt even faster.
Use our debt consolidation calculator to plug in your current balances, interest rates and monthly payments. Then see how much you could save with a debt consolidation loan and compare the options based on your credit score.
How to choose a lender
A good first step is to compare what each lender can offer you. Online lenders allow you pre-qualified for rates, repayment terms and loan amounts you may be eligible for. Pre-qualifying with multiple lenders can help you compare rates and terms, without hurting your credit score.
It’s a good rule to go with the lender that offers the lowest rate, but you also need to pay attention to the repayment term. Longer terms mean more interest, although your monthly payment is more affordable.
You can also look for lenders who specialize in debt consolidation. These lenders will offer benefits such as sending loan funds directly to your creditors and free financial education to help you manage your debts.
NerdWallet has reviewed over 30 lenders to help you choose the right one for you. Although borrowers with higher credit scores will likely receive the lowest rates, there are still loan options for bad credit.