If you are like many consumers looking for debt relief solutions, then you have probably considered the possibility of taking out a debt consolidation loan. Before opting for any new debt to manage older debts, you need to understand the potential consolidation loan rates that you are likely to receive from different types of financial services. The average loans rates are the first place to look for potential interest on the new debt.
Loan Interest Basics:
Anyone who is considering a consolidation loan needs to understand the basics of the loan rates. The loan rates are variable based on a wide range of factors. The most common considerations include the current credit rating, credit history information, the lender and current market rates for interest charges.
Consumer credit scores and credit history are among the first considerations that impact the interest charges. Consumers who are struggling with debt payments and considering a loan often have a few recent missed or late payments on their account. The history information will show the current problems while the actual score will indicate the current reliability.
The lender also plays a role in determining charges. Traditional lenders have stringent requirements for consumers who are eligible for the loan. Beyond having tough qualifications, the lenders also have high interest rates that are usually not enough to be worth taking out a new loan.
Non-traditional lending solutions, such as peer-to-peer lending, might seem like the answer to the problem, but in most cases, the interest rates are even higher. Those who do not qualify for traditional loans might be able to get the funding, but usually the interest rate is too high to be worth considering.
Current market rates only play a role in the interest charges if the individual has a good enough credit rating to get the loan. Those who have good credit will find that they are able to get good rates in some markets while other times will result in higher rates that are not worth the expense.
Loan Basics:
A consolidation loan is a very specific type of loan. The average loan is usually a much higher interest rate than you might expect because the loan is used to reduce the interest on other debts. It is used when consumers are facing difficulties with debt payments, and thus, it has a great deal of risk associated with the funds.
The consolidation loan is a new debt used to pay down other loans and debts. The goal of any consolidation is reducing the average interest rate significantly enough to help reduce the monthly costs.
In many situations, the interest rate reductions are not enough to manage the situation when finances are already out of hand. A consolidation loan is usually a higher interest than many consumers expected.
Average Loan Rates:
The average rates for a consolidation loan are variable. While it is true that the figures will differ based on personal data, you should expect a reasonably high rate if you qualify for the loan based on the particular lender.
Those who have good credit ratings can expect interest rates that are usually around 12 to 15 percent or so. The particular figures will vary based on the credit rating, but most individuals who have good credit will receive reasonable rates when looking at personal loan figures.
Average credit scores, which is where most individuals will find, usually have a higher interest rate for the consolidation loan. Consumers can expect rates between 15 percent and 20 percent, depending on their particular credit rating data. If you have a credit score that is in the high-average numbers, then you can expect a rate around 15 or 16 percent. Lower average figures will end up with higher interest charges.
Low credit scores are usually not worth considering for a new loan. In many cases, the rate will end up above 20 percent and sometimes as high as 30 percent.
Consolidation loans are expensive. Not only does it not dramatically reduce interest rates, but it will also add a closing cost of 3 to 5 percent of the loan amount. Debt consolidation loans are expensive methods of managing the problem. It usually results in further difficulties for most consumers. There are better alternatives to a debt consolidation loan.