A debt consolidation loan can help you take control of multiple debts, and you might save on interest costs with a substantially lower rate. But getting a debt consolidation loan with bad credit is difficult (FICO considers scores below 580 to be “bad,” or poor). Lenders might be reluctant to approve your application, and those that approve you will likely charge high interest rates or fees—making it hard to come out ahead.
If you have bad credit, it’s worth exploring your options. But it’s critical to acknowledge that the options may be limited and expensive, and predatory lenders may target borrowers in your situation. In some cases, you might be better off paying down your existing debts without applying for a new loan.
We researched some of the most popular lenders online to identify potential sources for a debt consolidation loan. These lenders may lend to borrowers with lower credit scores, but that doesn’t mean they approve every application. To qualify for a loan, you typically need steady income or other factors that can offset items in your credit history.
Best Debt Consolidation Lenders for Bad Credit
|Lender||APR||Loan Amount||Repayment Term||Recommended Minimum Credit Score|
|LendingClub||10.68% to 35.89%||$1,000 to $40,000||3 to 5 years||580+|
|OneMain Financial||18.00% to 35.99%||$1,500 to $20,000||2 to 5 years||600+|
|Avant||9.95% to 35.99%||$2,000 to $35,000||2 to 5 years||600+|
|Veridian Credit Union||19% to 21%||Up to $500 available at once||Up to 6 months||N/A|
LendingClub is a pioneer in online lending, and you could be considered for approval with any credit score; LendingClub doesn’t disclose a minimum score. You can also apply for a loan with a co-borrower, which may improve your chances of getting approved.
Borrow as little as $1,000
Time to receive funds is longer than other lenders
LendingClub Personal Loan Details
|Loan Amounts||$1,000 to $40,000|
|Fixed APR||10.68% to 35.89%|
|Loan Terms||3 or 5 years|
|Time to Receive Funds||At least four days|
|Recommended Minimum Credit Score||580+|
With relatively small loan amounts, origination fees, and somewhat high rates, OneMain Financial may be one of the most realistic options for borrowers with bad credit. If you’re having trouble getting approved, you can also pledge collateral to improve your chances. That’s a risky move—you might lose the item you pledge if you miss payments—but if you have no other choice, it could make sense.
If you decide to pledge collateral like your car, consider the risks carefully. Will you be able to get to work and earn an income if you lose your vehicle? What about transportation and care for family members?
OneMain Financial has physical branches, and you might be required to go to a branch to complete the application process. However, if you don’t live near a branch, it’s possible to work with OneMain Financial entirely online.
Before you borrow, review any origination fees—those charges can go as high as 10% in some states. If you’re also paying a high interest rate, borrowing can be quite expensive.
Funding may only take one business day
Potentially high origination fees
OneMain Financial Personal Loan Details
|Loan Amounts||$1,500 to $20,000 (maximums in some states are substantially lower)|
|Fixed APR||18.00% to 35.99%|
|Loan Terms||2 to 5 years|
|Fees||Potential origination fees of $25 to $400, or 1% to 10%, no prepayment penalty|
|Time to Receive Funds||At least one business day|
|Recommended Credit Score||600+|
Avant offers debt consolidation loans online with no minimum credit score requirement, but borrowers with scores above 600 have the highest approval rates. Avant evaluates factors such as your income and payment history when making an approval decision.
With bad credit, you’ll likely pay the highest rates at Avant. Plus, the flat administration fee adds to your total borrowing cost. If it helps you get approved and save money overall, it may be worth it, but origination fees make the most sense when you can recoup that cost over time.
Funding may only take one business day
Flat administration fee adds to total borrowing costs
Avant Personal Loan Details
|Loan Amounts||$2,000 to $35,000|
|Fixed APR||9.95% to 35.99%|
|Loan Terms||2 to 5 years|
|Fees||Administration fee of up to 4.75% of your loan amount, no prepayment penalty|
|Time to Receive Funds||Potential for next-business-day funding|
|Recommended Credit Score||
Veridian Credit Union
Veridian Credit Union offers a Payday Alternative Loan (PAL) that might be a good option for quickly paying off small debts. PALs must follow strict rules from the National Credit Union Administration (NCUA), which helps keep costs under control. The rate you pay Veridian CU is relatively low for a bad-credit lender, but it’s still best to minimize borrowing.
Veridian CU’s approach puts you in a better financial position in six months. You receive half of the funds (less the application fee) up front for consolidation, but you repay on the full loan amount. At the end of your term, you have a paid-off loan and additional cash for emergencies. With that safety net in place, you’re less likely to take on high-interest-rate debt again.
To get approved, you’ll need to become a member at Veridian CU and set up direct deposit into your account. All of that (especially waiting on your employer to send your wages) can take time. Once everything is set up, you can apply for a PAL and potentially receive funding in one day, according to a Veridian CU representative. You must also not have any charged-off payday loans.
To qualify for membership at Veridian CU, you can create an account at the Dwolla payment platform, which is available to consumers nationwide.
Payday loan alternative for borrowers needing to quickly pay off small debts
Must wait six months before you borrowing again, if needed
Veridian Credit Union Personal Loan Details
|Loan Amounts||Up to $500 available at once ($475 available for spending, after application fee)|
|Fixed APR||19% to 21% (with autopay)|
|Loan Terms||Within 6 months|
|Fees||$25 application fee, prepayment penalty|
|Time to Receive Funds||Potentially in one business day, but you can only get one PAL every six months|
|Recommended Credit Score||
Where Can You Get a Debt Consolidation Loan With Bad Credit?
You can consolidate debts with a variety of lenders, including banks, credit unions, and online lenders.
Small banks and credit unions may be a good option because you can often speak with a loan officer about your situation. That person can review your finances manually, provide suggestions, and possibly request exceptions that get your loan approved. Credit unions, in particular, tend to have a community focus, and they may be especially likely to help out when you have bad credit.
Contact your local credit union and ask what your options are.
Online lenders are also worth a look. Those companies keep overhead costs low and may use technology to take a creative look at your finances. It’s easy to apply for a loan with these lenders, making it relatively easy to compare rates and fees. As you shop among lenders, find out if checking your rate will affect your credit—too many inquiries could lower your score and make it harder to borrow.
What Credit Score Do You Need to Get a Debt Consolidation Loan?
There is no single credit score that results in approval (or denial). Lenders make an approval decision based on multiple factors. Your credit history is an important piece of the puzzle, but it’s not the only piece. The higher your credit score, the better, but don’t rule out approval just because your credit score is low.
Some lenders don’t work with borrowers who have bad credit, so you gain more options as your credit improves. For example, Prosper, a prominent online lender, requires a score of at least 640 to get approved.
Every lender has different criteria, and you can contact lenders and ask what their minimum credit score requirements are. If there is a hard minimum, lenders will tell you. You’ll never know unless you ask.
Pros and Cons of Debt Consolidation Loans
Simplify your life by reducing the number of payments you make each month
Reduce interest costs if you get a loan with a low interest rate
Get a fixed monthly payment with a specific payoff date
Find a path out of payday loan debt cycles
Lower your monthly payment, in some cases
Origination fees can add to your borrowing cost instantly
Extended repayment terms can cause you to pay more interest over time
Credit inquiries may lower your credit scores
Lenders typically charge higher rates when you have bad credit
Is a Debt Consolidation Loan Right for You?
Consolidating debts may make sense when you come out ahead financially. Start by looking at how much you’ll pay overall with your current debts, including monthly payments and total interest costs. You can get those numbers with online calculators or other tools.
Next, crunch the numbers on a debt consolidation loan using the new loan amount and interest rate. Examine how much you’ll pay in interest each month and over the remaining life of each loan. If you’ll save money, consolidating your debts may make sense.
Monthly payments might be the determining factor. When your current monthly payments are more than you can afford, a consolidation loan could offer relief. If that’s what it takes to get back on track financially, that’s OK, but be aware that you might end up paying more (including interest and origination fees) over the life of your loan.
Alternatives to Debt Consolidation Loans
Trying to get a new loan with bad credit can be difficult. It’s hard to get approved, and you might only get offers at high rates—possibly equally as high as the rates you’re paying now. As a result, it’s smart to explore all of the alternatives.
Plan Your Payoff Strategy
A relatively simple (but not necessarily easy) approach might be to pay down your debts as they stand. Pay more than the minimum whenever you can, and put every spare dollar toward your debts until they’re gone.
Earn More (At Least Temporarily)
If you have opportunities to earn more, take advantage of those and put the additional income toward your debts.
If you have items that are worth money, consider selling them online or at a yard sale. That’s a quick way to generate cash, and you can send your earnings to lenders to reduce the amount of debt you’re paying interest on.
You already may have done all the cutting you can, but take a close look at where your money goes each month. Track your spending with a pen and paper or a budgeting app, and identify potential areas for saving.
Debt Management Plans
A debt management plan from a credit counseling agency might offer the relief you need. Instead of getting a new loan, you may be able to negotiate with creditors to secure a lower monthly payment, lower interest rate, or other forms of relief.
If you have no other options, it may be worth speaking with a bankruptcy attorney. A court might be able to prevent creditors from pursuing you as long as you meet certain conditions.
The Bottom Line
Consolidating debt can help you reduce interest costs, get a lower monthly payment, and minimize the number of payments you make each month. But it’s not always the right move. Especially when you have bad credit, you need to be careful about agreeing to a loan with high interest rates and fees. It’s worth shopping around, but it might be best to keep your debt where it is.
OneMain Financial. "FAQ - Payment and Fees." Accessed Aug. 24, 2020.
Prosper. "What are the Minimum Criteria to Borrow on Prosper?" Accessed Aug. 24, 2020.