Consolidation Loans for Bad Credit
Drowning in debt and sick of keeping up with numerous bills and due dates? Struggling to pay back your huge loans and worried about the penalties? It’s about time to think about consolidation loans.
But what are they, really? And are they possible with a credit score below 670? Well, everything is possible, provided that you know your options and develop a well-thought-out plan.
To do that, you’re going to need all the information you can get about bad credit debt consolidation loans in Australia. So, here we go!
Consolidation Loan (Bad Credit) – Explained
Before delving into the vast sea of debt consolidation loans for bad credit, we’ll assume you don’t know a lot about this type of loan and give you a little information.
Consolidation loans are a type of loans designed to help customers with multiple creditors repay their debt in fewer amounts and at a faster pace.
Instead of having multiple repayments and several lenders, a consolidation loan gathers all these debts in one loan. That means you’ll have one lender, one repayment date, one interest rate, one debt fee and finally, one monthly payment to worry about.
In other words, they take your mess and turn it into order and free you from the stress of having multiple due dates.
They come in the shape of fixed-rate unsecured loans, meaning that you’re not obligated to offer collateral as a form of security. Moreover, unlike other types of loans, you’re guaranteed that your monthly payments will stay the same over the loan’s lifetime; no sudden rate increases or changes in the repayment term.
Because they combine all your debts and interest rates in one, debt consolidation loans for bad credit usually come with lower interest rates than those you incur over the lifetime of multiple loans. This can save you thousands of dollars and help you budget your finances.
So suppose you have bad credit. Is this the only benefit you get from a consolidation loan? Actually, no!
Apart from lowering the sum of your debt, a consolidation loan usually comes with more forgiving terms and conditions than conventional loans. Since lenders already know you’re not in your best shape financially, they tend to be more flexible and find solutions to benefit both parties.
Additionally, a consolidation loan can help you get your credit score back on track. If you apply for conditions that you can keep up with, you’ll be able to repay your debts in time and leave good marks on your credit report, which can eventually increase your score in less than a year.
Debt Consolidation Loans for Bad Credit – Online Decision
So, who lends consolidation loans for people with poor credit scores? In general, you can get consolidation loans from banks, credit unions or online lenders. Yet, only the latter offers guaranteed debt consolidation loans for bad credit in Australia.
As a matter of fact, many non-bank lenders consider things other than your credit score. They understand that the mistakes you made in the past don’t have to hold you back forever, so they build their trust in your ability to repay your debt through other documents like your bank statement, job history and annual income.
There are other benefits you get from applying for online debt consolidation loans, even with bad credit. For example, you can apply online quickly and get your loan approved within 1-2 business days without the hassle of going through lots of paperwork or visiting an official bureau. Moreover, you can compare offers and rates without further hurting your credit score.
Of course, your below-average score will get in your way of getting the lowest interest rate since it shakes loan providers’ trust in your ability to repay them. However, most of the time, the interest rate you’ll get from a consolidation loan will still be lower than that of your multiple debts.
How Can You Get Consolidation Loans with Bad Credit?
We’ve established the fact that getting consolidation loans to pay off debt with bad credit isn’t impossible after all, but it’s not that easy either. There are certain measures you can take to increase your chances of getting your loan approved.
Check Your Credit Score
Sure, some lenders offer consolidation loans for bad credits, but even those have minimum requirements that you have to meet first.
For instance, they may accept credit scores below 670, but they may not approve of anyone with a score of less than 570. So, what if your credit score lies below their forgiving range?
You can always check your credit score for mistakes. This may look like a futile attempt, but you won’t believe how many people succeeded in boosting their scores by fixing their reports.
Errors like inaccurate credit limits, incorrect payment statuses, duplicate accounts, and falsely reported missed payments could be the reasons why your credit score is so low. By fixing these mistakes, you can clean your report and meet the lender’s minimal requirements.
Not only that, but you can also enhance your likelihood of getting a lower interest rate just by a small bump in your credit score.
Opt for a Secured Loan
As we said before, debt consolidation loans for centrelink customers are almost always unsecured. However, if you find it challenging to get an unsecured loan, you can offer collateral and increase your opportunities of getting a secured consolidation loan.
Providing an asset as a guarantee will help lenders turn their eyes away from your bad credit score, as they’ll have something in their hands to cover the amount of the loan in the event that you fail to repay.
Add a Co-Signer
If your credit history doesn’t meet your loan provider’s requirements, you still have a chance of getting qualified if you bring a co-signer.
A co-signer is a person who promises to pay off your loan in case you’re unable to pay back your debt. Of course, a co-signer must have a good credit score or at least a score that matches the lender’s criteria.
However, be aware that failing to repay the debt will affect the score of both you and your co-signer equally.
Improve Your Debt-To-Income Rate
If you’re not in a hurry to get a consolidation loan, you might want to try increasing your debt-to-income rate. The lower your debt-to-income rate, the more qualified you’ll be in the eyes of lenders.
You can do this by postponing large purchases and focusing on increasing the amount you pay monthly toward your debt. If you do this for a few months, you’ll be more likely to qualify for a consolidation loan, even with bad credit.
It’s not the wisest move to jump headfirst and take the first offer you can get. Of course, you won’t have plenty of options to choose from, but you’re still free to choose the best of them. Take your time and compare the interest and comparison rates of several providers.
You can also pre-qualify with more than one online lender – provided that they don’t charge for prequalification, of course – and see the amount of money you’ll be obligated to pay to be able to choose the most affordable one.
If you’re worried about the impact of this on your credit score, put your mind at ease. Lenders won’t do more than a soft credit check on your report, which won’t have any adverse effects on your score, unlike hard credit checks.
Wait and Boost Your Credit Score
Finally, if you don’t get lucky with all the previous methods, you can always take a step back and try to solve the core problem.
Make a plan that ensures you pay off your monthly repayments on time for several consecutive months and eliminate the debts on your credit card. It’ll also be of great help to hold off any unnecessary memberships and subscriptions till your financial situation gets back on track.
After a while, you’ll notice an increase in your credit score, which will help you take out a consolidation loan and sign up for better terms.
Other Ways Online Lenders Can Help You Become Debt Free
Suppose you’re in a tight spot, and not even bad credit consolidation loans can help. In that case, online consolidation lenders can offer you a few other options to help manage your financial situation and avoid bankruptcy.
This a formal agreement that can help those with lower income and bad credit scores pay back their debts. An online lender can jump into the situation and help you reach an agreement with your creditors to settle your debt for less than what you owe, depending on what you can afford to pay. Needless to say, this will land an unforgiving punch in your credit report if you default.
However, you’ll be paying less money than if your debt consolidation lender hasn’t intervened. Not to mention that you’ll spare yourself the annoying calls of debt collectors. Also, you’ll be dealing with your consolidation lender only, so you’ll have only one regular repayment to bear in mind.
Just like the previous option, your debt consolidation lender will negotiate with your creditors. But instead of negotiating on the amount of money you owe them, they will try to get you better deals on the repayment time.
If the negotiations succeed, your creditors will freeze the interest on your debts for a while and give you more time to settle your debts at a slower pace.
Personal Insolvency Agreement
A personal insolvency agreement is a legally binding deal between you and your creditors to settle your debts without resorting to bankruptcy. It entails that you offer a valuable belonging as an asset or contribute a part of your income towards paying back your creditors.
Home Loan Refinance
This is one of the last resorts you can opt for if you’re struggling to pay off your debts. A home loan refinance allows you to consolidate all your debts into your mortgage.
This will help you repay your debt faster and with lower interests since the interest rates on mortgages are usually lower than other loan types.
The catch here is that if you fail to repay, you could risk losing your home, which serves as collateral in this agreement.
The bottom line is there is always a way to get out from debt burdens even if your credit score falls within the bad range. Just keep in mind that a consolidation loan isn’t going to fix your problem; it’ll just make it more manageable.
Whatever solution you choose, make sure to address the core problem sooner rather than later. Dedicate your efforts to fix your financial situation, and keep working at it. Eventually, a positive impact will appear on your credit score.
And remember that taking out a consolidation loan for bad credit without knowing for sure that you can repay it is exchanging one small problem with much more significant problems.