How a debt consolidation loan works

The example

Meet a borrower with three balances. Nothing unusual: two credit cards and a store card, $4,100 in all, each with its own rate and due date.

Your own rate depends on your credit profile and state. Consolidating pays off when that rate is lower than what your cards charge.

What happens, and when

1. About 3 minutes
   Check your rateYou say how much you owe and a little about your income. A soft inquiry is used, so your credit score is untouched.
2. Same sitting
   Review the offerYou see the APR, any origination fee, the monthly payment, and the total you would repay. If the numbers don't beat your cards, you stop here at no cost.
3. When you sign
   Accept and sign onlineA hard credit inquiry may be made at this point.
4. As soon as the same business day
   The money arrivesIt is sent to your checking account by ACH direct deposit. If there is an origination fee, it is taken out first.
5. That week
   You pay off each cardSend each card issuer its full balance. This is the step that turns three payments into one.
6. Months 1 to 24
   One fixed payment$206.66 on the same date each month. You can pay extra or finish early without a penalty.
7. Month 24
   DoneThe loan is paid off and the debt is gone.

Is it actually cheaper?

To compare fairly, imagine the same borrower puts the same $206.66 a month toward the cards instead, highest rate first, with no new spending.

In this example the loan costs $456 less in interest and finishes 3 months sooner. Change the loan rate to something higher than the cards and the result flips. An origination fee, if there is one, also has to be counted.

What you agree to when you sign

A consolidation loan is an ordinary installment loan. The agreement sets out four things, and none of them changes afterwards.

• The APR, fixed for the life of the loan.
• The monthly payment and the date it is due.
• The term, which fixes the date of your last payment.
• The fees: any origination fee, and what happens if a payment is late.

Our full fee list is on the rates and fees page.