Debt consolidation and refinancing can allow you to secure a lower interest rate and fewer fees than your current debt has. With debt consolidation, you combine multiple debts by taking out a new loan to pay them off. The new loan should have more favorable terms than your old debts. Refinancing works the same way, except you’re only taking out a new loan in order to pay off a single debt.
Personal loans are a common type of loan borrowers use for debt consolidation and credit card refinancing. These loans typically are for $1,000 to $50,000 with repayment terms from 12 to 60 months or longer. They may be known as debt consolidation loans when used to combine multiple debts. Personal loans don’t require collateral and can come with lower APRs than you may find on other types of debt.
For example, the average APR across all open credit card accounts was 15.09% in May 2020, according to CompareCards. For personal loans, the average APR was 11.99% for borrowers with credit scores of 760 and above.
Your credit score and finances will influence the lenders and terms you may access. As different lenders will offer different loan terms and credit requirements, it’s important to compare options. You can use the LendingTree marketplace to see loan rates from up to five lenders you prequalify* with, depending on your eligibility.
Shop personal loan rates
* Prequalification doesn’t guarantee loan approval.
Personal loans come with a set repayment term, typically 12 to 60 months.
A lower loan rate will cut down your total cost of debt repayment.
Budget for one monthly payment instead of tracking several debt payments makes juggling your money easier.
Secured debts like auto loans and home equity loans use your personal property as collateral. You may qualify to use an unsecured personal loan to pay off those loans, that way you won’t risk losing your personal property if you default.
Credit cards
Home equity loans
Auto loans
Personal loans
Medical debts
Car title loans
Payday loans
Other types of debt
Personal loans are available from banks, credit unions and online lenders. Although you can likely find lenders locally, exploring lenders online can help you find more flexible terms and potentially lower interest rates. Further, prequalification can reveal the lenders you may qualify for as well as the terms you could get – all without dinging your credit.
Comparison shopping is key to getting your lowest rates on loans. Consider the below data, which reveals average offered APRs to borrowers within four credit bands. For each band, we also show the average APR offered to the top 10% of borrowers.
Personal loans: Average best offered APRs | ||
Credit score | Average APR (overall) | Average APR (top 10% of borrowers) |
760+ | 11.99% | 5.34% |
720-759 | 16.24% | 6.75% |
680-719 | 20.98% | 9.88% |
640-679 | 24.89% | 15.73% |
Souce: LendingTree Personal Loan Offers Report, May 2020 |
Lenders set personal loan rates based on a borrower’s likelihood of repayment. Since the loans aren’t secured, the lender cannot reclaim property if you fail to repay the loan. When a lender thinks you’re likely to repay a loan, it’ll offer a lower rate on the loan.
To understand how a bank views your financial history, it is important to focus on two numbers:
After providing basic personal information and on your loan needs, you’ll prequalify with up to five lenders within a few minutes. Compare your loan offers to help you find the lowest refinance rates available to you. If there’s a loan offer you’d like to pursue, you can move forward with a formal application, which will require a hard credit check. Prequalified offers are not loan guarantees because the lender must verify your eligibility.
Borrowers with bad credit may qualify for personal loans to pay off debt, but the best rates on personal loans go to borrowers with great credit scores. While it takes time to build good credit, there are steps you can take to improve your credit and potentially access better rates over time: