What is a debt consolidation loan?

A debt consolidation loan is a way for people struggling with debt to pay off their unsecured debt faster. Debt consolidation loans are a type of personal loan and you must meet the requirements of a lender to qualify for it.

Basics of Debt Consolidation Loans

When you take out a debt consolidation loan, you consolidate all of your unsecured debt, such as credit card bills, medical bills, and other personal loans, into one monthly payment. You give yourself the possibility of combining several of your invoices, without having to worry about several due dates.

Debt consolidation loans are repaid in fixed rate monthly payments, usually over a loan term ranging from 24 to 60 months. To qualify for a debt consolidation loan, most lenders require that you have decent credit. This usually means a FICO credit score of at least 660 and above.

However, some lenders offer these loans to people whose credit is not perfect. If your credit is poor, the interest rate will be above average, although what you are actually entitled to will vary depending on the lender.

You can get a debt consolidation loan from a bank, credit union, or online lender. Generally speaking, you have a better chance of being approved for this type of loan from a lender with whom you have a good relationship.

However, it doesn’t hurt to apply to several different lenders and compare the offers. Just make sure you do all your fare purchases within a short period of time, usually 14 days or less. This way, all in-depth inquiries made about your credit for the same type of credit will only count towards your credit score as one firm inquiry.

Can I include payment for my car?

Debt consolidation includes your unsecured debt and only your unsecured debt. Unsecured debt, which includes credit card debt, is not backed by collateral (your assets), unlike secured debt.

Secured loans are when you borrow money to fund a large asset over a fixed term. Auto loans and mortgages are considered secured loans and have a guaranteed interest (your vehicle or your house). These loans usually come with lower interest rates and longer repayment periods.

Unfortunately, there is no way to include secured debt, such as a car loan, in a debt consolidation loan. If you’re having trouble keeping track of your car payment, the best thing to do is track your payments. Set a schedule for yourself – for example, make your payment on the same day each month and / or set up automatic payments.

If budget planning doesn’t help, you may be able to refinance your auto loan to lower the monthly payment. If you have bad auto credit, most lenders require that at least a year has passed and your credit score has improved since you took out the original loan.

Your refinancing options are either to extend the term of the loan or to benefit from a lower interest rate. Ideally, you want to get a lower rate and save money on interest charges on top of a lower monthly payment, but that’s not an option for everyone.

If you need temporary help, extending the loan term without getting a better interest rate can still lower your monthly payment, even if you pay more long-term interest charges.

The bottom line

Taking out a debt consolidation loan can help you consolidate all of your unsecured debt so that you can pay it off in one monthly payment. Our trusted partner can help you consolidate your debt if you don’t know where to start.

If you are just looking for a bad credit auto loan, we can help you too. For more than 20 years, Auto Express Credit has helped many consumers with unique credit situations get the financing they need.

Our partner dealers have the right kind of lenders for people with imperfect credit. Simply complete our free and easy car loan application form to start the matchmaking process with a local dealership today.

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