What are the average interest rates for consolidation loans?

It is possible to be surprised by the rates offered by different lenders for consolidation loans.

There are many options for consolidating debt, such as personal loans, home equity loans, or balance transfer credit cards. Different lenders will charge different interest rates. Different lenders might charge different interest rates depending upon the type of consolidation loan chosen, your credit score, and other factors. Higher credit scores will improve your chances of being approved for a lower interest rate.

These are the most important facts regarding consolidation loans. These facts will help you get approved for the right consolidation loan.

What is a consolidation loan?

A debt consolidation loan consolidates multiple loans (such as credit card debts) into one loan that has one monthly payment. It is possible to get a lower interest rate and a lower monthly payment.

When it comes to debt consolidation loans, there are two options. Secured loans require collateral, such as a home or savings account, to secure the loan. If you default on your debt payments, lenders can seize your assets. But unsecured loans don’t require collateral.

Consolidating debts can help you to save money. This may be possible. You can lower your monthly payments by taking out a loan with a lower interest rate, a longer-term, or both.

If you make minimum payments, the loan term could be extended. This could result in higher interest rates throughout the loan’s term. Consolidation loans may also come with additional fees and costs.

Debt-consolidation loan rates

Many factors can affect the interest rates of debt consolidation loans. This includes the type of loan that you apply for. Secured loans usually have lower interest rates than unsecured loans.

Federal Reserve data showed that personal loans had an average interest rate of 9.34% for two years. This was August 2020. Individual loan APRs can vary depending on credit scores.

According to Fed data, the average credit card rate was 16.43% in August 2020.

You will need strong credit and a low debt-to-income ratio to qualify for the lowest rates.

Credit cards

With balance transfer credit cards, multiple credit cards can be transferred to one card. Although an introductory 0% APR might be available, it may not last for very long. This typically lasts between 12 and 21 months. It is crucial to pay the entire balance within the promotional period. After this, interest and fees are due on balance.

Home equity loans

You can borrow a lump amount and then repay it with interest. Because you can use your home to collateralize a loan, home equity loans offer lower interest rates. If you default on your loan, your home could be lost.

What factors affect my interest rate for a consolidation loan?

Several factors can affect your debt consolidation loan rate. The product you’re looking at can affect the rate. Personal loans have higher rates and fees than credit cards. Rates can be affected by many other factors.

Credit and credit scores

You may be eligible for lower interest rates if you have good credit. It is worthwhile to improve your credit rating before applying for a consolidation loan. Your interest rate will be affected by your credit score.

The lender

Although you can obtain debt consolidation loans through credit unions or traditional banks, each lender might charge a different interest rate. Credit unions typically have lower APRs than conventional banks. To apply for a loan, you must be a member. For those with bad credit, online lenders may be an option. While online lenders can charge interest rates of 6% to 36%, they are generally lower than personal loans from banks.

The ratio of total debt to income

Your debt-to-income ratio (or DTI) is the percentage of your monthly gross income that you use for debt repayment. Higher DTIs are often considered riskier by lenders. If your DTI is higher than 43%, lenders may not approve lower interest rates.

Lender term

The loan term is the amount of time it takes to repay. A shorter-term loan will typically have lower interest rates because you pay less interest over a shorter period. Although longer terms might have higher interest rates or total expenses, they may be cheaper monthly payments.

Fixed vs. variable APR

While fixed interest rates might have a higher initial rate than others, they are less likely to change over the loan term. Variable interest rates may start lower but could rise depending upon market conditions.


Bottom line

Consolidating debt can be difficult because of the many options available. It is important to compare credit products to help you choose the right one. This is an excellent way for you to compare rates and loans. Prequalification does not guarantee approval or the same terms as if you were prequalified.

Understanding why you are in debt is essential. If you are having trouble paying your debts, credit counseling may be an option.

What state regulations are in place for payday loans?

If you’re wondering what state laws are in place regulating payday loans where you live, keep in mind that some states prohibit payday loans.