Best debt consolidation loan rates of May 2024

A debt consolidation loan can streamline your payments and save you money by combining your existing debts into one new loan with a lower annual percentage rate (APR) and payment. But how much you can save depends largely on the APR you get. And that depends on your credit score, income, and other factors. 

We review the most competitive loans on the market, including those for fair-credit and bad-credit borrowers. We also look at how you can improve your loan application to lower your rate.

Compare debt consolidation loan rates

Best debt consolidation loan rates

Since small rate drops can result in meaningful savings, it’s worth it to shop around and compare prequalification rates before settling on a lender. Prequalification takes just a few minutes and won’t hurt your credit, but it’s not an offer of credit. Once you formally apply, the lender will conduct a hard credit pull, which could temporarily lower your score.

SoFi: Best overall

PenFed: Best credit union for personal loans

Upgrade: Best for fair credit

Discover: Best for no origination fees (and low rates)

LightStream: Best home improvement loans and low rates

Best Egg: Best for high close rates if pre-approved

LendingClub: Best online experience

Avant: Best for all credit types

Upstart: Best fast personal loans for all credit types

Methodology

We evaluated the best debt consolidation loan rates based on factors such as customer experience, minimum fixed rate, maximum loan amount, funding time, loan terms, fees, discounts, and whether cosigners are accepted. Our team of experts gathered information from each lender’s website, customer service department, in-house resources, and via email support. Each data point was verified to make sure it was accurate at the time of publication.

What is a debt consolidation loan?

A debt consolidation loan can be any loan that you use to pay off existing debt. Personal loans are often used for debt consolidation since they’re relatively quick to get and typically have fixed interest rates along with a fixed monthly payment. Plus, personal loan rates are much lower on average than credit card rates, according to the Federal Reserve, which can mean big savings when consolidating credit card debt.

While rates aren’t the only factor to consider when picking a debt consolidation loan, they do play an important role. The lower your rate, the less a loan will cost you. For example, a $10,000, five-year loan with a 30% annual percentage rate (APR) will cost $9,412 in interest over the loan's term. But drop the APR by just 5 percentage points and your loan cost drops by $1,801 to $7,611.

You could also use a home equity loan to consolidate debt if you have sufficient equity to do so. But it can be risky to trade unsecured debt, like credit card debt, for a loan secured by your home. (If you default, the lender could potentially foreclose.)

How to compare debt consolidation loans

1. Compare APRs

When shopping for debt consolidation loans, compare APRs across loans. The APR accounts for the interest rate along with any upfront fees the lender charges, and so gives a better picture of borrowing costs than comparing interest rates alone. Upfront fees can include origination fees or application fees.

2. Compare fees (especially origination fees)

Some personal loan lenders charge fees, the largest of which are usually origination fees. Origination fees are typically deducted from the loan amount upfront, and range from 1% to 12%, depending on the lender. As a result, the amount you receive could be less than the amount you intend to borrow. For debt consolidation, you’d need to borrow more than the amount you want to pay off to account for an origination fee.

Here’s a closer look at how origination fees can impact your APR, loan amount, and total costs.

In addition to upfront fees, consider late fees, insufficient funds fees, and other fees between lenders.

3. Compare repayment terms

The repayment term can impact loan rates in two ways:

1. A shorter repayment period often means a lower APR.
2. A longer repayment term means you’ll pay more in interest relative to a shorter repayment term with the same APR.

Some personal loan lenders offer repayment terms up to five years, some offer up to seven years, and some offer even longer terms for specific loan purposes, like home improvement. When considering the monthly payment amount, be sure to compare it against that loan’s repayment period. Most importantly, make sure you can comfortably afford the monthly payments — it could make sense to choose a loan with a higher interest rate and longer repayment term in exchange for a monthly payment that won’t break the bank.

Also consider what your financial situation might look like throughout a prospective loan’s term. For instance, if you’re considering starting a family in five years, you may want to pay off your loan before then.

Can you get a good debt consolidation loan rate with bad credit?

The lower your credit score is, the harder it’ll be to find a good rate on a loan. For example, borrowers with credit scores between 0 and 599 had an average APR of 30.25% on five-year loans, according to average personal loan interest rates. On the other hand, borrowers with scores of 780 or higher saw an average APR of 17.46%.

Debt consolidation loans are typically unsecured, so approval is based primarily on your credit and income. If you have a record of missed payments, loan defaults, or other derogatory marks, lenders will see you as a higher-risk borrower. As a result, they’ll likely charge you more for a loan or may even deny your application.

To find the best rate, research lenders with low minimum credit score requirements or those who offer loans with cosigners, and take steps to improve your application. The biggest credit gains typically take time, like creating a history of on-time payments. But some actions can result in quick credit score gains, like becoming an authorized user on someone else’s credit card.

Pros and cons of debt consolidation loans

A debt consolidation loan can help streamline the repayment of multiple debts, but it won’t be the best solution in all situations. Here’s a look at potential pros and cons.

Pros

• One payment: You can consolidate multiple debts into a single loan with one monthly payment.
• Lower APR: If you get a low APR, you can save money on interest.
• Lower monthly payments: Combining multiple debts into one loan can reduce the monthly payments you were making before, saving you money on interest and freeing up your budget.
• A payoff date: Unlike revolving credit accounts, a debt consolidation loan comes with a structured installment payment plan and a payoff date.

Cons

• Potential origination fees: Some lenders may charge origination fees that get deducted from the loan amount upfront, but not every lender does so.
• Potential increased costs: If you opt for a long loan term or can’t get an APR lower than what you currently have, a debt consolidation loan could make debt repayment more expensive.

How to get a debt consolidation loan

Here’s how to get a debt consolidation loan.

1. Check your credit

Qualifying for a debt consolidation loan relies heavily on your credit, so it’s a good idea to check your score before applying. Visit AnnualCreditReport.com for free credit reports. Ensure everything is correct and report any errors to the credit bureau showing the error.

2. Review your debts

Next, make a list of your current debts and, for each one, take note of your outstanding balance, APR, monthly payment amount, number of remaining payments, and estimated additional interest. A payoff calculator can help with the last two. Once you have all your debts listed, determine the total amount you owe, average APR for all accounts, your total monthly payments, your average remaining term length, and the overall interest you may owe if you pay according to your current payment plans.

By collecting this information, you can know exactly what you need in terms of rate and amount from a debt consolidation loan.

3. Shop around and prequalify

Prequalify with multiple lenders to see rates and terms you might qualify for. Be prepared to provide some personal information, like your name, date of birth, and Social Security number, so lenders can more accurately predict potential rates.

Prequalification doesn’t hurt your credit score, but it’s not an offer of credit. Because it’s an estimate, your final rate may differ.

4. Run the numbers

Review the quotes and see which (if any) lenders offer what you need. Look for the loan that provides the most benefits, such as lowering your monthly payment, reducing overall costs, or shortening your payoff time.

5. Apply for the best loan

If you find a good fit, go through the lender’s full application process. Once you apply, the lender will perform a hard credit check, which could hurt your score temporarily. You’ll also need to provide detailed income and employment information, and be ready to submit required documentation. For example, you may be asked to show a government-issued ID, and/or copies of your pay stubs and bank statements.

6. Get your funds

Upon approval, the lender can send you an official loan offer. If everything looks good, you can sign the contract electronically. Some lenders can send funds to your bank account while others pay off your creditors directly. Funds may arrive as soon as the same or next business day after approval, but some lenders can take up to a week.

Best debt consolidation loan rates FAQ

What is the best debt consolidation loan rate?

Debt consolidation loan rates fluctuate based on market conditions, so the best rate today may be different from the best rate next week. The average APR for a 24-month personal loan was 12.35% as of November 2023, according to The Federal Reserve. But the rate you may get is based on the lender’s criteria and your credit profile and income.

How do I get the best debt consolidation loan rate?

To get the best debt consolidation loan rates, you need an excellent credit score, a stable and sufficient income, a low debt-to-income ratio, and a strong credit history. Improve the odds of getting the best debt consolidation rate by shopping around and comparing prequalification quotes from various lenders.