Debt consolidation means that you can take out a new loan to cover all the existing debts. In such a way one of the possible solutions is getting a personal loan.
In such a case your financial situation will be checked by a lender to find out if you meet the necessary requirements or not. The lender will take into consideration the following aspects:
- The amount you want to borrow.
- Your payment history.
- The repayment period you have.
In case there are no problems with your credit history and the amount you owe is not too high, a personal loan will become a proper solution for your debt consolidation. You can get a personal loan on your credit card. Then you will choose the terms and conditions matching your financial possibilities and preferences.
As debt consolidation offers lower interest rates to the borrowers, you will probably get longer repayment period. In such a way you will have to cover lower monthly costs.
In case your financial situation doesn’t correspond to the lender’s requirements, you will be proposed to take out a secured loan. It means your property will be used as collateral against your loan.
In such a way the lender’s risk of giving money to a person with bad credit history or high outstanding debt is reduced.
What Credit Score Do You Need to Be Approved for a Personal Loan?
In fact, a personal loan can get a borrower with a score of 620 and lower. Still, there exist some peculiarities. Personal loans are the kind of unsecured loan, which doesn’t require collateral. That’s why you might be assigned to pay a high rate. On the other hand, you can pay a low interest rate and here lies the main peculiarity – your credit score influences the interest you will be charged to pay.
The potential borrowers with a 750+ credit score in most of the bank institutions may be asked to pay a 10.99% APR, while those, whose credit score is 620 and lower, – 17.99%. In simple words, the first person may even receive 8.18% APR on $10,000 for 48 months and, in the result, pay off a debt in the amount of $11,758.80. The second person on the same conditions will have to pay $17,288.46 with 30% APR.
Furthermore, a person with an excellent credit score may ask for a longer repayment period and other privileges while those with a worse score will be captured in the restrictions.