As with any other type of loan, the primary factor determining the interest rate you’ll pay is your credit history as depicted by your credit score. However, some lenders do take other factors into consideration, such as your employment history, your income and other personal factors that might indicate you’re a good risk.
Still though, it’s best to stick to the fundamentals when taking a look at how credit card consolidation rates are set.
Past Performances Matter
A credit card consolidation loan is typically an unsecured form of financing used to merge existing debt obligations to simplify the payment of bills and reduce the associated monthly payments. When shopping for the best credit card consolidation rate, as we mentioned earlier, quotes can vary depending on your financial background, as suggested by Brcanski Forum.
The Basic Parameters
Most decision-making processes take the following parameters into consideration
Creditors usually require borrowers to have a minimum credit score of at least 590 or higher. Borrowers with scores under 600 that do not have collateral or a cosigner will find it challenging to qualify for a personal loan. However, learning about credit card consolidation rates at www.freedomdebtrelief.com, you’ll also find this often varies according to the lending policies of individual lenders.
How Interest Rates Are Determined
As we’ve stated, the average interest rate for credit card consolidation can fluctuate significantly depending on the borrower’s credit profile and the circumstances of the amount required. On average, debt consolidation loans have a higher interest rate when compared to other forms of debt; this is due to several key factors:
- Debt consolidation loans are normally unsecured, meaning that there is no collateral underlying the credit, unlike in a mortgage lending situation where the underlying property secures the lender’s interest in the event of a default; this is the rationale for why debt consolidation loans are riskier for the lender.
- Borrowers who have significant amounts of outstanding debt usually apply for credit card consolidations. Large balances on revolving debt, such as on credit cards and credit lines, will drive down credit scores, particularly if you exceed 30% of your allotted revolving credit on any credit vehicle.
- Debt consolidation loans are usually used to reduce the interest payments on other debts. Restructuring your debt with a consolidation loan means qualifying existing debts are bundled into another form of debt obligation but are not terminated; the higher interest rates on debt consolidation loans indicate this reality.
Credit card consolidation rates and fee structures for personal loans also fluctuate according to the Fed rate.
However, once a loan agreement has been accepted, a fixed-rate APR guarantees the interest rate and monthly payment stay constant throughout the loan’s lifetime. For this reason, it’s a good idea to avoid variable rate loans. The APR, monthly payment and loan amount extended to a borrower are contingent on the debtor’s credit history and creditworthiness.
When taking out a loan, lenders will conduct a hard credit inquiry, which impacts credit scores, as well as request a complete credit application, which could include but is not limited to:
- Proof of income,
- Identity verification, and
- Proof of address
Long story short, there are a number of different variables that go into the calculation of an interest rate on a consolidation loan. Each instance should be approached as the unique situation it represents.