The best types of debt consolidation loans for a high debt-to-income ratio are secured personal loans and home equity loans. By putting down property as collateral, borrowers with a high debt-to-income (DTI) ratio can overcome lenders’ concerns about their ability to pay the bills. Other options include applying with a cosigner or enrolling in a debt consolidation program that doesn’t focus on credit history A debt consolidation program may do a soft pull of your credit and ask for your income, but you’re less likely to be rejected because of a high DTI than you would be with a loan.
It is difficult to qualify for an unsecured loan when the debt you already owe represents a large percentage of the money you’re likely to have available for monthly payments. Plus, it’s even harder to get approved for a big enough unsecured loan to consolidate existing debts or a low enough APR to actually save money.
Most lenders don’t disclose their debt-to-income requirements. But DTI is a major factor used in the loan approval process, and it’s best to keep that rate below 36%. Fortunately, for those above that threshold, there are options to borrow what you need, even with a high DTI ratio. Let’s explore each in greater detail.
Types of High Debt-to-Income Ratio Consolidation Loans:
- Secured personal loan. A secured personal loan requires you to put up collateral, such as money in a bank account, stocks, a vehicle’s title, etc. That reduces most of the lender’s risk because they can keep the collateral if you default, so these loans are easier to get. Keep in mind that you’ll need to provide collateral that’s worth as much as the debts you’re consolidating (or more) in most cases.
- Home equity loan. A home equity loan requires your house as collateral, so if you don’t pay the loan back you risk foreclosure. In addition, since the amount you can borrow is based on the value of your house (minus the existing mortgage balance), you may have the opportunity to consolidate large amounts of debt. Your credit score should be at least 620 if you want to pursue this option.
- Unsecured personal loan with cosigner. You’re unlikely to qualify for a suitable unsecured personal loan by yourself if you have a high DTI. You can get around this by applying for a personal loan that allows cosigners. The lender will give more weight to the cosigner’s credit and income than yours when evaluating the application, since the cosigner will be responsible for paying if you cannot. So if you can get a cosigner with a better DTI than yours, your approval odds will increase.
- Debt consolidation program. Debt consolidation programs may not have any minimum credit or income requirements. That’s because you’re not applying for a loan. Instead, a company negotiates with lenders on your behalf in an effort to get you lower rates. Then, you make monthly payments to that company, which distributes the money to your creditors.
Bear in mind that these programs do charge startup fees and monthly fees. Also, make sure to do your research before working with one, just to confirm it is a reputable company. That’s always a wise move when dealing with services related to debt relief.
Ultimately, the best option for debt consolidation with a high debt-to-income ratio is probably to apply with a cosigner. That way, you may be able to get low rates and high loan amounts without putting up any collateral. But you should also strive to decrease your debt-to-income ratio in the long run. So, try to use consolidation as a way to get out of debt, not as a way to make room for more.
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