How to Get a Debt Consolidation Loan With Bad Credit

Getting a debt consolidation loan with bad credit may require some shopping around, but there are options for borrowers.

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Updated · 4 min read
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Written by Jackie Veling
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A debt consolidation loan is a personal loan you use to combine and pay off multiple debts at once — think credit card balances, medical bills or other unsecured personal loans — so you’re left with only one monthly payment.

Ideally, this payment comes with a lower interest rate than your current debts, which can save money and help you get out of debt faster.

Can you get a debt consolidation loan with bad credit?

Getting a debt consolidation loan if you have bad credit (a credit score below 630) may require some shopping around, but there are options, including loans from credit unions and online lenders.

Some lenders cater specifically to borrowers with bad credit and consider factors beyond credit score, such as education, income and job history.

Here's how to qualify for and get a debt consolidation loan, plus how to know if it’s a good idea for tackling your debt.

How to qualify for a debt consolidation loan with bad credit

Check your credit report

Are mistakes on your credit report the reason your score is low? Check for errors such as wrong accounts, incorrectly reported payments or inaccurate credit limits.

You can check your credit report weekly for free at each of the three major credit reporting bureaus — Experian, Equifax and TransUnion — using AnnualCreditReport.com.

Even a small bump in your credit score may increase your odds of qualifying for a debt consolidation loan. Going from a bad to a fair credit score (630 to 689) could also lead to a more affordable loan with a lower interest rate.

Another tip is to pay off any small debts you see listed on your credit report. This lowers your credit utilization, which accounts for 30% of your credit score. It can also improve your overall debt-to-income ratio, which lenders use to evaluate your ability to repay a loan. The lower the DTI ratio, the more likely a lender may approve your loan application.

Consider a secured, co-signed or joint loan

Some types of personal loans may be easier to qualify for, including a secured, co-signed or joint loan.

With a secured loan, you use collateral like a car or savings account to help guarantee the loan, which means lenders may be more likely to approve you or extend a lower interest rate. But if you fail to pay back the loan, you lose the collateral.

Adding a co-signer with a better credit score or higher income than you can also boost your chances of approval. However, note that a co-signer takes on equal responsibility for the loan, even though they don’t have access to the funds. If you miss payments or fail to repay the loan, your co-signer’s credit score may suffer.

Joint loans are similar to co-signed loans, but the co-borrower has equal access to the funds.

Shop around and pre-qualify

To get the best deal on your debt consolidation loan, you’ll want to compare interest rates and terms from multiple lenders, and the easiest way is through pre-qualifying. You can pre-qualify with most online lenders to see estimated rates and loan amounts. This involves a soft credit check, which doesn't hurt your credit score.

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How to get a debt consolidation loan with bad credit

1. Submit your application

Once you’ve pre-qualified and chosen a lender (learn about where to get a loan lower down), it’s time to officially apply for the loan. This process is usually online, and you’ll be asked to provide personal information, including your Social Security number, and required documentation that verifies your identity, income and employment.

Many lenders can make an immediate approval decision, though some may take a few business days to get back to you.

2. Get funded

Once you’re approved, you’ll receive the loan documents, which you can usually sign electronically. Make sure to read the documents carefully before signing.

Lenders can deposit the funds directly into your bank account, though some may offer direct payment to creditors, which means the lender pays off your creditors for you, simplifying the process — and eliminating any temptation to use the cash for something else.

Though funding time varies, many online lenders offer same- and next-day funding.

3. Pay down debt and keep up with loan payments

Once you receive the funds in your account, use them to pay off your debts. If the funds are being sent to your creditors for you, confirm with each creditor that your debt was successfully paid off.

Next, make a plan to manage your loan, which may include building a budget that prioritizes your new monthly payment and keeping an eye on any refinancing opportunities.

Most lenders charge a late fee for missed payments — and report them to the credit bureaus, which can hurt your score — so consider setting up automatic payments to avoid falling behind.

Where to get a debt consolidation loan for bad credit

Credit unions

Credit unions are not-for-profit financial organizations that may offer more flexible terms and lower rates than online lenders.

Federal credit unions cap annual percentage rates on personal loans at 18%.

Some credit unions don’t allow you to pre-qualify for a loan; applying requires a hard credit check, which can temporarily lower your credit score and make it harder to shop around.

You also need to become a member of the credit union to apply for a loan, which may mean living or working nearby and paying a small membership fee. A local credit union is a good place to start, though national credit unions also offer debt consolidation loans.

Online lenders

Online lenders are more convenient and often provide faster funding, but they may charge higher rates for bad-credit borrowers than credit unions do.

Online lenders may also charge origination fees that cover the costs of processing your loan. The fee is typically deducted from the loan proceeds, so you might have to request a larger loan to get the full amount you need.

Upgrade is one of the best online lenders for a bad-credit loan. If you get a debt consolidation loan and have Upgrade send the funds directly to your creditors, you can qualify for an additional rate discount of 1 to 3 percentage points, which lowers the amount of interest you pay.

Upstart also accepts applications from borrowers with bad credit and will evaluate alternative data on your application, like college education and work history, which could boost your odds of approval and getting a low rate.

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