The reason to consider personal loans for debt consolidation is to see if one would benefit your financial situation. Here’s what you should look for:
A competitive interest rate and APR
To get started, look for a good loan interest rate. Ideally, this should be lower than the interest rate on your existing debt.
But the interest rate isn’t the only cost you’ll pay: there are other fees associated with loans. Also, the repayment term can affect the amount of interest you pay even more than the interest rate itself. To get a better idea of how much a loan costs compared to other loans, look at the annual percentage rates (APR).
A repayment term that suits you
The faster you pay off your loan, the more money you’ll save in interest charges. But a short-term loan (the time you have to pay off the loan) also means high monthly payments. If you don’t have a lot of room in your budget, a longer repayment term might suit you better. See our guide to the pros and cons of longer repayment times for more information.
Low or no fees
Origination fees are upfront fees that lenders charge you for processing and distributing your loan. These can range from 1% to 8%. Let’s say you take out a $10,000 loan. This means you can pay anywhere from $100 to $800 in setup fees. The best debt consolidation loans charge little to no origination fees. You can also check with your lender to see if the fee is negotiable.
Some lenders charge you a fee if you decide to prepay a loan. Look for a lender that does not impose prepayment penalties. This way you can repay the loan faster if you wish.