Thank you for you question about debt consolidation loan fees.
Debt consolidation loans are not a uniform product. That makes comparing fees more difficult because you want to make sure that you are:
- Choosing the right debt relief program for you situation
- Comparing similar products
In fact, sometimes debt relief programs that consolidate payments such as debt management or debt settlement programs are bunched together with debt consolidation loans.
Debt consolidation loans are one possible solution if you are paying high interest on your current loans and credit cards. You are correct in considering the total costs, interest rates and interest fees when taking out a loan. Debt consolidation loan fees and interest rates vary between different types products. Three main ways of distinguishing between debt consolidation loans are:
- Collateral: Is it a personal unsecured loan or a secured loan (house, auto, bank account)?
- Length: Is the loan for a short term (payday loan consolidation), medium term (personal unsecured loan), or a long term (home equity or cash out refinance mortgage loan).
- Special purpose: Student loan consolidation, payday loan consolidation, or debt consolidation.
One other important point: Your credit score and credit history will affect your ability to find a cheaper loan. If you have bad credit beware of any "low interest rate", because there are probably other fees, and often "hidden costs".
Quick tip: If you have student loans then learn about student loan consolidation.
In order to find the best solution for you situation make sure that you review:
- Debt Consolidation Loan Solutions and Costs
- Finding the right solution - Not only low fee on debt consolidation loans
Types of Debt Consolidation Loan Solutions:
In order to help you find the best solution, here is a general review of different types of debt consolidation loan solutions and costs.
Making Fixed Payments
The first step to take is analyze your debt and your monthly payments. Are you making a dent in your credit card debt or just making minimum payments? Even with high interest cards, you can lower your overall financial costs by making fixed payments instead of paying decreasing minimum payments.
In order to successfully implement this plan, you need to set up your budget and keep your spending within your limits. Make sure that you plan to spend at least a certain amount of money toward your credit card and personal debts (without running up more debt). You will be surprised at how much you can save. I could give you an example, but instead try out Bills.com minimum payment calculator to see how quickly you can pay off your debt.
Credit Card Balance Transfer Fees
If you have built up credit card debt and wish to lower your interest rate, then a credit card balance transfer is a possible solution. In general, you need an excellent credit score to get a good rate. It definitely pays to shop around.
Transferring from a 18% interest rate to a 0% rate sounds like a great deal. However carefully check the terms including:
- Balance transfer fee: Credit card balance transfer comes with an up-front fee, generally around 3.5% of your balance
- Interest Rate: There is usually an introductory "teaser" period between 12-18 months, that will vary between the balance you transfer and new purchases.
- Annual fees: Many new cards come with no annual fees, but always check the fine print.
- Rewards: Discounts and reward points can be a nice "bonus". But, don't count on making money from rewards, because that means you have to spend money. It may not be for the things you really need.
Bank Debt Consolidation Loan Fees
A personal unsecured debt consolidation loan lets you pay off one or more of your debts (credit card, retail, medical) through one loan. Many big lenders require you to be a customer of their institution. They also offer special rates depending on the type of services you sign up for.
Many lenders offer two types of debt consolidation loans, installment loans (with fixed interest rates) and line of credit (with variable rates). Rates and fees vary by lender and your credit rating. Some take an upfront processing/origination fee.
A viewing of Wells Fargo's Web site on July 2012 shows examples of personal unsecured loans between $3000 - $100,000, for 12-60 month period. Rates and fees vary based on your credit rating and state. Fees vary between $0-100. Personal line of credits carry an annual fee of $25.
Besides upfront fees, check with the lender any other conditions they require to maintain a discounted fee. This usually relates to other types of activities you must maintain with the bank.
Peer-to-Peer Debt Consolidation Loan Fees
Another popular place to look for a debt consolidation loan is a peer-to-peer lender, such as Prosper or Lending Club. These lenders raise money that is earmarked for different levels of risk, based on types borrower's credit rating, past history with the lender, and the length of the loan.
In most cases you do not have any upfront fees. Check carefully with the lender the interest rate and the Annual Percentage Rate (APR). Also, check if there are any processing fees or prepayment fees.
Payday and online Bad Credit Loan Consolidation Fees
My first advice is avoid payday and online bad credit consolidation loans. Although they may be "easy" to obtain, they are hard to get rid of. For some, it is an attractive solution to avoid overdraft fees (which are very high). However, getting out of a payday loan is hard, unless you have a very good financial budget.
Payday loans and bad credit loans come with very high interest rates. They often are advertised with no application fees. But, I strongly recommend that you read all the fine print, which is not usually included in the promotional information. These type of loans often have "hidden" costs including:
- late fees
- legal fees
- turnover fees
When it comes to turnover or rollover fees, the first one is free, but then you keep paying high rates and fees to roll them over. A $100 loan can come with a $15 charge at the end of the month. While this is less than an overdraft charge, you still have to pay your loan back. And this will either come from your bank account (so maybe you didn't avoid the overdraft fee) or an expensive rolling over of the loan.
Home Equity Loan or Cash-out Refinance Debt Consolidation Loan
Using your home as collateral means transferring unsecured debt to secured debt. For some, this can mean affordable long term payments (and increasing your overall financial expense). However, weigh carefully your ability to repay the loan against risking the equity in your home.
Mortgage loans come with high start up expenses, including application fees, appraisal fees, origination and discount points, and third party fees. I recommend that you read the Bills.com article about mortgage rates and mortgage fees.
Quick Tip: If you are considering a cash out refinance, then get a mortgage quote from a Bills.com mortgage provider.
Finding the Right Solution - Not Only Low Fee on Debt Consolidation Loans
Fees vary widely based on the type of lender, loan and borrower. Usually, with a short term loan, it is easier to compare terms based on a published APR, especially when dealing with big banks and reputable lenders.
Remember, debt consolidation loan fees are a small part of the cost. If you don't have good credit (credit score, debt-to-income ratio, and credit history), then you will not be eligible for a good rate or even for a loan. Bad credit means expensive loans.
If you need help deciding which type of debt relief solution is best for you then read the Bills.com articles about debt relief options and learn about credit counseling programs and debt settlement and debt negotiation solutions.