The average credit score in America was 711 as of 2020 — a figure that falls into the category of “good” on the FICO scale. However, looking at this average score does not tell the whole story for many Americans. For instance, older consumers tend to have much higher credit scores, while younger consumers tend to have lower ones. The average FICO rating for millennials during the same time period was 680, while the average score for members of Generation Z was 674. Average scores also vary widely by location, too.
The takeaway? Many Americans fall below that average number for a wide variety of reasons. If your credit score falls in the “fair” or “poor” categories, you may even be wondering if it’s possible for you to do something like get a competitive consolidation loan.
Are there good debt consolidation loans for borrowers with bad credit? Let’s investigate further.
Can You Get a Consolidation Loan with Low Credit?
It may come as a relief to hear that it is very often possible to get a consolidation loan even with a less-than-optimal credit score. While certain lenders do reserve loan approval for borrowers with high scores, other lenders are more flexible — with some even specializing in bad-credit loans nowadays.
However, consumers with low credit can expect to encounter offers with higher interest rates if they do get approved. As one expert notes for U.S. News & World Report, someone with strong credit may be able to get a loan with an annual percentage rate (APR) of six percent or lower; it’s possible for a borrower with bad credit to encounter APR of 30 percent or higher.
At the end of the day, your approval for a given loan and the APR it carries depend on your credit profile, income and more. The good news is that it’s not an automatic disqualification to have bad credit. However, it’s important to keep in mind the APR for which you qualify may be high enough to actually negate the positive effects of consolidation.
Tips for Finding Competitive Bad-Credit Consolidation Loans
What should borrowers look for when they’re trying to find the best personal loans for bad credit? Right off the bat, check if a lender has a credit score minimum. This will save you the trouble of starting a loan application for a product for which you’re ineligible.
As noted by Forbes Advisor, traditional banks tend to have stringent criteria for personal loans if they offer them at all. However, online-only lenders have sprung up as a possible alternative and are known for sometimes having “faster approval and funding.”
Getting preapproved for a loan does not bring down your credit score, as it launches a soft inquiry rather than a hard one. But, to save yourself the time and effort of applying for loans that are not a good fit for your needs, be sure to make careful note of each lender’s requirements when you’re shopping around.
Some important factors to compare include:
- Minimum credit score needed to qualify
- APR offered
- Maximum loan amount offered
- Length of loans
- Prepayment penalty
Read more: Is Accredited Debt Relief a Good Company?
There are consolidation loans available to borrowers with bad credit, especially online. However, whether these loans are truly a good idea to pursue will depend on how much you stand to save if you take the loan versus coming up with a strategy to pay down your debts on your own. Knowing bad-credit loans tend to carry higher interest, you’ll need to assess whether you’ll actually be able to save upon consolidating — adding fees into the mix, too.