Banks that offer debt consolidation loans

Most banks offer debt consolidation loans, but the ones most likely to work with you depend on whether you already have an account there and what your credit history looks like. Large national banks like Chase, Bank of America, Wells Fargo, and Citibank all have consolidation loan programs. Regional banks and credit unions often have more flexible terms for people with lower credit scores or shorter banking histories with them.

The real difference is not which bank has a loan, but which one will lend to you at a rate you can afford. A bank that advertises consolidation loans may decline you if your credit score is below their minimum, or offer you a rate so high that consolidating makes no financial sense. Before you explore anywhere, check what credit score range each lender actually accepts — this information is usually on their website under "personal loans" or "debt consolidation loans".

Online lenders like LendingClub, Upstart, and SoFi also offer consolidation loans and sometimes approve people with credit scores that traditional banks reject. The tradeoff is that online lenders often charge higher rates than banks, though they may move faster. Credit unions, if you are a member or can join one, frequently offer the lowest rates of all, especially if you have been a member for at least six months.

Key Takeaways

  • National banks like Chase and Bank of America offer consolidation loans, but each has a minimum credit score requirement that you should check before explore.
  • Credit unions typically offer lower interest rates than banks or online lenders, but you must be a member and usually need a six-month membership history.
  • Online lenders approve people with lower credit scores than banks do, but their interest rates are usually higher than what a bank would charge.
  • The lender that will work with you matters more than the lender with the best advertised rate — compare what you actually may have access to for, not what the website shows.
  • You can ask your current bank about consolidation loans even if your credit score is below their usual minimum, because existing customers sometimes get different terms.

How banks decide whether to lend to you

Banks use your credit score as the first filter. Most national banks want a score of 620 or higher, though some want 650 or higher. If your score is below that range, you will likely be declined before a human ever reviews your process. Credit unions and online lenders often have lower minimums — sometimes 580 or even lower — but this varies by lender.

Beyond the score, banks look at your debt-to-income ratio, which is the total amount you owe each month divided by your gross monthly income. If you already owe more than 40 to 50 percent of your monthly income, most banks will decline you or offer a smaller loan than you need. They also check whether you have recent late payments, how long you have had credit accounts open, and whether you have any accounts in collections.

Your income matters, but banks care more about whether you have a steady source of it. You do not need a job with the same employer for years — most banks just want to see that your income is regular and verifiable. Self-employed people can usually show bank statements or tax returns instead of a pay stub.

What to expect when you explore

When you explore for a consolidation loan, the bank will ask for your Social Security number, date of birth, current address, and employment information. They will pull your credit report from one or more of the three major credit bureaus — Equifax, Experian, and TransUnion. This pull is called a "hard inquiry" and it temporarily lowers your credit score by a few points, usually five to ten points.

The bank will also ask you to list your debts — credit cards, medical bills, car loans, or whatever you want to consolidate. You do not have to consolidate everything; you can consolidate only the debts you choose. Many people consolidate high-interest credit cards but keep a car loan separate because the car loan rate is already lower.

Once the bank approves you, they will offer you a loan amount, an interest rate, and a repayment term — usually three to seven years. The rate depends on your credit score, income, and how much you are borrowing. Before you accept, make sure you understand the monthly payment and whether there are any fees for paying off the loan early. Some banks charge a prepayment penalty; others do not.

Interest rates and what affects them

The interest rate a bank offers you depends primarily on your credit score. Someone with a score of 750 might get a rate of 6 to 8 percent, while someone with a score of 620 might get 15 to 20 percent. The difference is real and substantial — on a $10,000 loan over five years, a 6 percent rate costs about $1,600 in interest, while a 20 percent rate costs about $5,700.

Your income and the loan amount also matter. Borrowing a larger amount sometimes gets you a slightly better rate because the bank's cost to process the loan is spread over more money. Borrowing a smaller amount sometimes costs you more in percentage terms. The length of the repayment term affects your rate too — a longer term usually means a higher rate, because the bank is taking on more risk that you will default over a longer period.

If your current rate is not competitive, you have options. You can wait three to six months, work on raising your credit score, and reapply. You can look at credit unions or online lenders to compare. You can also ask your current bank whether they offer a better rate to existing customers, because some do.

Banks versus credit unions versus online lenders

Banks are the most familiar option and usually the fastest if you already have an account there. They have physical branches where you can ask questions in person, and they are heavily regulated by federal agencies. The downside is that banks have strict credit score requirements and often charge higher rates than credit unions.

Credit unions are member-owned cooperatives, not profit-driven corporations. They typically offer lower rates than banks because they do not have to generate profit for shareholders. Many credit unions will work with you even if your credit score is lower than a bank would accept. The catch is that you have to be a member, and membership usually requires living or working in a specific area or belonging to a specific group. Some credit unions let you join if you open a savings account with them, which costs as little as $5 or $25.

Online lenders move quickly — sometimes approving you within hours and funding within one to three business days. They often approve people with lower credit scores than banks do. However, their interest rates are usually higher than what you would get from a bank or credit union, and you have no physical location to visit if something goes wrong. Online lenders are also less regulated than banks, so read the terms carefully before you sign.

Questions to ask before you borrow

Before you accept a consolidation loan from any lender, ask whether there is a prepayment penalty — a fee for paying off the loan early. If there is, the fee should be disclosed in writing. Ask what happens if you miss a payment and whether the lender offers any hardship programs if your income drops. Ask whether the interest rate is fixed or variable; a fixed rate stays the same for the life of the loan, while a variable rate can go up or down.

Ask whether the lender will pay your creditors directly or send the money to you. Most banks pay you directly, which means you are responsible for paying off the old debts yourself. Some lenders will pay creditors directly, which is safer because the money cannot be spent on something else. Ask how long the process takes from approval to funding, because this varies widely — anywhere from one day to two weeks.

Finally, ask whether the lender reports the loan to the credit bureaus. You want them to, because paying off a consolidation loan on time helps rebuild your credit score. Some smaller lenders do not report, which means the loan does not help or hurt your credit history.

When consolidation makes sense and when it does not

Consolidation makes sense if the interest rate on the new loan is lower than the average rate you are paying now, and if the monthly payment is lower than what you are paying across all your current debts. If you are paying 18 percent on credit cards and can get a consolidation loan at 10 percent, that is a real saving. If the new payment is $50 lower each month, that frees up cash for other things.

Consolidation does not make sense if the new rate is higher than what you are already paying, or if the monthly payment is only lower because you are stretching the loan over a much longer time. Paying off a $10,000 credit card debt over seven years instead of three years means you pay far more interest overall, even if the monthly payment is smaller. Run the numbers: multiply the monthly payment by the number of months you will be paying, then subtract the original loan amount. That is the total interest you will pay.

Consolidation also does not help if you run up new credit card debt after consolidating the old debt. Some people consolidate, feel relieved, and then accumulate new debt on the same credit cards. You end up owing both the consolidation loan and new credit card debt, which is worse than before.

Frequently Asked Questions

Can I get a consolidation loan if I have bad credit?

Yes, but your options are more limited and your interest rate will be higher. Credit unions and online lenders are more likely to work with you than national banks. You might also ask your current bank whether they offer consolidation loans to existing customers with lower credit scores, because some do. Expect to pay 15 to 25 percent interest rather than 6 to 12 percent.

Will consolidating hurt my credit score?

The hard inquiry when you explore will lower your score by a few points temporarily. Consolidating will also change your credit mix, which might lower your score slightly. However, if consolidation lowers your monthly payment and you pay on time, your score will recover and then improve over the next six to twelve months as you pay down the new loan.

What if I cannot afford the monthly payment after consolidation?

Contact the lender when ready and ask about hardship options. Some lenders will extend the loan term, which lowers the monthly payment but increases total interest. Others offer temporary payment reductions or forbearance. Do not skip payments without talking to the lender first, because that will damage your credit score.

Can I consolidate federal student loans with a bank consolidation loan?

You can, but it usually costs you money. Federal student loans have protections like income-driven repayment plans and loan forgiveness programs that you lose when you consolidate into a bank loan. If you have federal student loans, explore federal consolidation options first through studentloans.gov before considering a bank consolidation loan.

How long does it take to get approved and funded?

Banks typically take three to seven business days from approval to funding. Online lenders can be faster — sometimes one to three days. Credit unions vary widely depending on the institution. Ask the lender for a specific timeline before you explore, because this affects when you can pay off your old debts.