The interest rate you get for a debt consolidation loan will depend on a few different factors. Your credit score, your borrowing history, and the type of loan you’re using will all determine what kind of interest rate you will be offered.
Let’s start with your credit score. This is a three-digit number that tells lenders how trustworthy you are. It’s determined by a few different companies called “credit bureaus.” The credit bureaus track your borrowing practices over the years and give you a score based on how financially responsible you are. The scores range from around 300 up to about 850 depending on which credit scoring model you use.
Having a high credit score means you’re more likely to be approved for loans. Not only that but you’ll be able to get better interest rates, repayment terms, and loan conditions. Aim to improve your credit score if you need a debt consolidation loan.
Your borrowing history is a big part of your credit score, and whether or not you can get a good consolidation loan. Your credit report is what shows your borrowing history. It tells lenders whether you make payments on time, whether you’ve defaulted on loans, or if you’ve had any bankruptcies. Having a negative item on your credit report could potentially affect your credit score for several years.
The type of loan you choose for consolidating your debts will also affect what kind of interest rate you get. The best interest rates for consolidation loans will most likely be through traditional bank and credit union loans. But these are usually only offered to borrowers who have decent or good credit scores.
If you have a low or fair credit score you may not be able to get a bank or credit union loan. Many borrowers in this situation turn to personal installment loans. These loans are usually designed for borrowers with less-than-perfect credit. But no matter what kind of consolidation loan you choose, the most important thing to remember is that making your payments on time and paying it off by the due date could potentially help your credit score.