Does SoFi offer good debt consolidation loans?

A debt consolidation loan is a personal loan used to pay off more than one existing debt at the same time. The borrower receives a lump sum of money from the lender and uses that money to pay off their other debts. Those debts thus “consolidate” into one balance owed to the one new lender, with one monthly payment for the borrower. Ideally, the interest rate on the new loan will also be lower than the rates on the old loans that were consolidated. The consolidation loan will usually last for around 12 – 60 months.… read full answer

With a debt consolidation loan, you should be able to consolidate almost any type of existing debt – whether that’s from other personal loans, credit cards, medical bills, or more. That’s because in most cases, issuers don’t offer loans specifically targeted for debt consolidation, but rather have general-purpose personal loans that you can use for whatever you like. One notable exception is that many issuers will not allow you to pay off student loan debt with a personal loan.

Some lenders may have different terms for debt consolidation loans compared to personal loans for other purposes. For example, LightStream’s overall personal loan APRs range from 3.99% to 16.99%. But when it comes to loans for debt consolidation specifically, the minimum is 5.95% and the maximum is 16.79%.

The process of getting and paying off a debt consolidation loan is fairly simple. You apply for a loan for enough money to pay off whatever existing debts you want to combine. To get approved, you’ll usually need a credit score of at least 660. There are loans that accept lower scores, but they’re less likely to give you interest rates lower than you’re currently paying. Once you’re approved and receive your funds, you send a check to each existing lender to pay off your balance. You will no longer owe debts to your old lenders; instead, you will owe a new debt that’s the size of all the old debts put together.

However, it’s important to note that some personal loan providers may charge you an origination fee to open the loan – so your new debt could be larger than the sum of your old debts. In this case, it’s important to make sure that the new loan’s interest rate is significantly lower than those of your old debts. The main purpose of a debt consolidation loan is to save money, so you don’t want to end up paying more in the long run.

Another good way to consolidate debt is to get a balance transfer credit card and move several debts onto it. Balance transfer cards tend to have a 0% APR for 12 – 21 months and then revert to a relatively high regular APR after that. You might also consider consolidating debt through a home equity loan, which lets you use the funds for nearly any purpose.

Personal loans affect your credit score in the short-term and in the long-term. In the short-term, a personal loan may damage your score because it causes a hard credit inquiry and increases your debt load. But in the long-term, a personal loan can either help or hurt your credit, depending largely on whether or not you pay the bills on time. Ultimately, it’s up to you how much impact the personal loan will have.… read full answer

How a Personal Loan Affects Your Credit Score:

• Does temporary damage with an initial hard inquiry. When you first apply for a personal loan, your credit score will immediately take a small hit. That’s because applying for a personal loan triggers a hard inquiry into your credit history. But this shouldn’t drop your score by more than 5 points or so, and you should be able to bounce back quickly.
• Adds to your overall debt. If you’re approved for a personal loan, you will immediately have a higher debt load, which may cause your credit score to drop in the short-term. That’s because the more debt you have, the riskier it is for banks and credit unions to lend to you.
• Reports to the major credit bureaus monthly. The banks, credit unions and online lenders that issue personal loans report payment information to the major credit bureaus on a monthly basis. If you make on-time payments, you can expect your score to increase. But if you are late or don’t pay altogether, your score will drop.
• Improves your credit mix. Proving yourself capable of managing multiple types of loans and lines of credit responsibly is good for your credit score. It shows you can be trusted to repay what you borrow in a variety of situations. So if you only have one or two other types of accounts on your credit report, such as credit cards or student loans, your score may benefit in the long run from getting the personal loan.
• Could help reduce credit utilization. Personal loans give you a lump sum up front, which you pay back in monthly installments. This is different from a credit card, where you can borrow up to a certain amount any time you want. Credit cards are known as “revolving credit,” and a big part of your credit score is how much of your revolving credit you use up each month, or your “credit utilization ratio.” Personal loans don’t count toward this ratio, so if you use them to pay off revolving debt, you can lower your ratio and improve your score.

In conclusion, as long as you’re sure to pay on time each month, a personal loan should eventually increase your score by a lot more than the initial inquiry caused it to fall. You can also avoid wasting hard inquiries by getting pre-qualified for a loan first. Pre-qualification only uses a harmless soft inquiry. And while it doesn’t guarantee approval, it will let you know if your odds are good.

The minimum credit score for personal loan approval is 580, depending on the lender. That means it is possible to get an unsecured personal loan with a bad credit score, though such a loan will likely have an origination fee.

For your reference, WalletHub researched some of the most popular lenders to find out more about their specific loan requirements.… read full answer

Credit Score for Personal Loan Approval by Lender

*According to multiple third-party sources.

Your credit score is a measure of how risky it is for lenders to let you borrow money. The higher your score is, the better your chances of approval are and the better terms you’re likely to receive. Your credit score comes from a combination of factors that include your payment history, credit utilization, length of credit history, recent inquiries, and diversity of accounts.

But your credit score is far from the only thing that matters when it comes to personal loan approval. Lenders consider many other factors, including your income, existing debts, monthly expenses and more.

The minimum credit score needed for a personal loan with no origination fee and no collateral requirement is 660, which is fair credit. And borrowers will need good credit or excellent credit – a credit score of 700 or higher – to get the best personal loan rates. Personal loans for credit scores under 700 tend to be for relatively low amounts and have high APRs.

If your credit score is below 585, lower in the bad credit range, you still have options. For example, you could opt for a secured loan, where you put up something valuable as collateral. If you fail to pay back the loan, the lender can take the collateral as compensation. Because this greatly reduces the risk for the lender, people with any credit score may be considered for secured loans.

You can check your credit score for free on WalletHub. You’ll also get personalized advice for how to improve your score. The best way to estimate your odds of approval for a personal loan is to check to see if you’re pre-qualified for any offers before submitting an official application.