3 Things to Consider When Choosing a Loan for Debt Consolidation
If you have made the mistake of using your personal credit to fund your startup, you might be in over your head. In that case, there’s hope—a personal loan for debt consolidation.
The beauty of a personal loan for debt consolidation that is it’s an awesome way to eliminate high-interest credit cards and other high-interest loans by consolidating them all into one low-cost loan. When you choose the right loan, you’ll pay a fixed rate and monthly installments to one lender, not 5, 10, or more.
The type of interest rate you get all depends on your particular credit profile. But best of all, with a personal loan you’ll typically lock in one interest rate that will never fluctuate throughout the life of the loan. This is certainly a good thing for anyone who is spending outrageous amounts on interest and looking to pay lower rates.
With that said, we’ll take a look at different things to consider when comparing lenders for debt consolidation.
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1. How Much Will I Have to Pay in Loan Origination Fees?
First off, when you consolidate your credit cards and other loans into one newer, lower interest loan, you should expect to pay a loan origination fee. Lenders do not typically waive this fee since it’s one of the ways they make their money.
When considering all of your options, pay close attention to the loan origination fee. The cost of these fees can range dramatically. Typically, the average lender will charge a 1% to 6% fee of the total amount requested.
As an example, let’s say you decide to take out a $10,000 loan to consolidate all your credit cards into one lower interest loan. Next, let’s say your lender charges a 5% loan origination fee.
In this example, our hypothetical person will pay $500 to the lender for originating the loan on their behalf. This may seem too high a price to pay for some people, so it might be worth it to keep your options open. If the lender only charged 1% in this hypothetical example, the borrower would only pay $100 in loan origination fees, which to many seems more reasonable.
According to Debt Consolidation Help, a website that discusses low-interest personal loans for debt consolidation, “Applying for a debt consolidation loan can help you manage multiple payments.” This is one of the many benefits of debt consolidation loans.
2. Is It Possible to Add a Cosigner to My Debt Consolidation Loan?
Unfortunately, many people who are looking to consolidate their credit card debt into one loan have suffered negative blemishes on their credit report. Overall, the reason they want to add a cosigner to their loan is to lower the interest rate.
In certain situations you will be able to add a cosigner to your debt consolidation loan. A few examples of lenders willing to do so are FreedomPlus, LightStream, and Lending Club.
If you have a really low credit score, adding a cosigner could help a lot to lower your interest rates. However, your cosigner would need to have good credit for this strategy to work. Also, in many cases it’s important to find the right lender who is willing to allow a cosigner.
Consider this as an important option. But remember, the cosigner is on the hook for your loan now. So don’t screw up, because you’ll take your cosigner down with you.
3. Do Lenders Help Pay Down Your Debt?
Some financial institutions will give borrowers with good credit the ability to directly pay their creditors. By doing so, their chances of successfully paying off their debt will increase.
This isn’t a feature offered by all online lenders. So if it’s something you’re interested in, consider getting a loan from FreedomPlus or Discover since they have this option available.
