If you have a number of debts than a debt consolidation loan can be a good way to pay all of your debts off through a manageable single payment every month. These loans are certainly a good option if you are committed to become debt free and not be tempted to get into the same debt situation again. But you need to know how to find the best debt consolidation loan rate.
There are many lenders offering loans for debt consolidation. These loans have varying rates of interest. You can find loans with a great 5% interest rate and there are others where you will pay as high as 36%. The average debt consolidation loan has an interest rate of around 20%.
How to find a loan for Debt Consolidation
There are a number of different ways for you to get a debt consolidation loan. You can ask your bank or look at what is on offer from other banks. Credit unions can provide loans for debt consolidation and there are lenders online that have different offers as well.
Even if you have been with your bank for several years don’t just settle for a loan with them without comparing other loans. It is important that you secure the most favorable debt consolidation loan rate possible.
You will often find that you can get a better rate on your debt consolidation loan from a credit union rather than a bank. Credit unions are always interested in providing benefits for their members and one of the ways that they do this is providing loans at lower rates of interest.
There are plenty of online lenders who will be interested in providing you with a consolidation loan. Websites exist to compare the rates offered by these lenders. Check out the terms and conditions of any loans that you are considering.
Check your Credit Records
Having a good credit score is the best way to get a low debt consolidation loan rate. You need to check your credit records to see where you stand right now. Sometimes mistakes appear on credit reports and you need to get any errors rectified before you apply for a debt consolidation loan.
If your credit score is not as good as it should be then take steps to improve it. The smallest increase in your credit score can save you a great deal of money in the long term. You will get the very best interest rates for your loan if your credit score is 740 or above.
With lower credit scores you will receive higher rates of interest. If your score is below 660 then lenders will want to charge you the highest rates. This may still be better than the interest rates on the credit cards that you have.
Improving your credit score is always a good thing to do. It will take time but you will get a lower rate of interest on your consolidation loan. So put your application for a loan on hold for a while and fix your credit. Here are some of the things that you can do to improve your credit score:
- Make sure you pay all bills by the due date
- Make at least the minimum payment on credit card balances
- Talk to your bank and set up automatic payments for bills
- Stop using credit cards and drive the balance down below 30% of your limit for credit
- Don’t apply for any new loans or credit cards while you are fixing your credit
Applying for a Debt Consolidation Loan
When you have increased your credit score to a good level it is time to make an application for your loan. Check for the best debt consolidation loan rate and then visit potential lenders if they are in the high street. Tell the lenders that you want to use the money for consolidating your debts.
You will need to provide proof of income and provide other documentation such as bank statements and your ID. If you are applying online then the lender will tell you what you need to supply. They normally accept copies of the necessary documentation. In a lot of cases you can attach these documents to an email.
Ask lenders about any other fees associated with the loan. You do not want any surprises here. It is not uncommon for lenders to offer a low rate of interest but have high fees for setting up the loan etc. This can often negate any savings made with a low rate of interest.
Compare the Debt Consolidation Loan Rate from these options
When you are looking to consolidate your debt with a single loan there are usually four options open to you. You need to look at each of these options carefully to see which one suits you the best.
Loan from a Bank
This is one of the simplest ways to get a debt consolidation loan. Tell your bank that you want to consolidate your debts and that you want the best possible interest rate. If you have been with your bank for a while they should be very willing to help you.
A Debt Management Program
There are a number of reputable debt counseling agencies around that can help. They will help you be negotiating with your creditors by reducing the interest rate that you pay. You then have an agreement with the agency to make a single payment to them every month.
Interest free Credit Card Balance Transfer
With a good credit score you can seek out other credit card companies that will offer you a 0% transfer for a specified period. People that only have credit card debt often find this to be a good option.
A Personal Loan
A credit union, bank or online lender can provide you with a personal loan at a simple interest rate. You could try borrowing the money from friends and family as well. With all of these options make sure that you get the best debt consolidation loan rate.