Debt Consolidation vs. Bankruptcy: How to Choose

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Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as “Credible.”

If you’re struggling to make your monthly debt payments, then you might consider consolidating your debt or even filing for bankruptcy.

Debt consolidation allows you to combine all of your debt into a single personal loan while bankruptcy is a legal proceeding through which you might be able to discharge some or all of your debt.

Here’s what you need to know before deciding on debt consolidation vs. bankruptcy:

Debt consolidation vs. bankruptcy

Getting a personal loan for debt consolidation or filing for bankruptcy are both potential relief strategies for handling out-of-control debt.

Here are a few points to consider as you compare debt consolidation vs. bankruptcy:

Debt consolidation

  • Overall cost: Consolidating your debt will generally only cost what you pay in interest. If you’re able to qualify for a lower interest rate than you had before, then you’ll likely pay less than you would have had you not consolidated the debt.
  • Repayment time: Personal loans for debt consolidation generally offer repayment terms ranging from one to seven years, depending on the lender.
  • Credit score impact: Because the amount of debt you have won’t change, this shouldn’t have much impact on your credit score. You could see a slight dip in your score after you apply for the loan and the lender performs a hard credit check — however, this is usually only temporary, and your score will likely bounce back within a few months. Debt consolidation might even help improve your credit score over time if you make on-time payments on the new loan.

Learn More: Credit Card Consolidation Loans

Bankruptcy

  • Overall cost: If you file for bankruptcy, you can expect to pay a filing fee of $310 or $335, depending on whether you opt for Chapter 7 or Chapter 13. You might also have to pay for credit counseling or financial management courses. And if you decide to retain a bankruptcy lawyer, it could cost you up to a few thousand dollars.
  • Repayment time: With Chapter 7 bankruptcy, your assets are liquidated, and your creditors are paid with the proceeds while the rest of your debts are discharged — this usually takes about six months. Chapter 13 bankruptcy, on the other hand, lets you keep your property in exchange for agreeing to a three- to five-year debt repayment plan; if you make all of the agreed-upon payments under this plan, your outstanding debt will be discharged.
  • Credit score impact: Either type of bankruptcy can cause excessive damage to your credit score and will likely limit your ability to take out new loans unless you rebuild your credit. Keep in mind that a Chapter 7 bankruptcy will remain on your credit report for 10 years while a Chapter 13 bankruptcy will stay on your credit report for seven years.
  Debt consolidation Bankruptcy
Type of process Financial Legal
Overall cost Depends on interest rate A few hundred to a few thousand dollars
(depending on which chapter you file for and attorney fees)
Repayment time 1 to 7 years
(depending on lender)
  • Chapter 7: About 6 months
  • Chapter 13: 3 to 5 years
Credit impact
  • Little to no initial impact
  • Might improve credit in the future if you make on-time payments
  • Major negative impact
  • Stays on credit report for 7 to 13 years
    (depending on which chapter you file for)
Effect on debt payments Leaves with you a single payment Could eliminate some or all of your monthly payments
Wipes out debt? No Can discharge some or all debt

If you decide to take out a personal loan for debt consolidation, be sure to consider as many lenders as possible to find the right loan for your needs. Credible makes this easy — you can compare your prequalified rates from multiple lenders in two minutes.

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What you should know about debt consolidation

Choosing to consolidate your debt through a debt consolidation loan could be a helpful way to more easily manage your debt. With this option, you’ll take out a new personal loan that will be used to pay off all of your old debts — leaving you with a single loan to repay over time.

Before you decide whether debt consolidation is right for you, it’s important to consider both the advantages and drawbacks:

Pros of debt consolidation

  • Combines all of your debt: If you consolidate your debt, you’ll end up with just one loan and one monthly payment.
  • Might get a lower interest rate: This could save you money on interest charges over the life of the loan.
  • Comes with a set payoff date: You’ll know exactly when your debt will be paid off.
  • Likely won’t hurt your credit score: While you might see your score go down by a few points after the lender performs a hard credit check, it should bounce back within a few months. A debt consolidation loan might even help boost your score in the future if you keep up with your payments.

Learn More: How to Pay Off Credit Card Debt Fast

Cons of debt consolidation

  • Limited options for bad credit: You’ll typically need good to excellent credit to qualify for a personal loan. While some lenders offer personal loans for bad credit, these loans generally come with higher interest rates compared to good credit loans.
  • Debt isn’t discharged: Unlike with bankruptcy, your debt isn’t discharged through debt consolidation.
  • Could come with fees: Some personal loan lenders charge fees — such as origination or late fees. Keep in mind that if you take out a loan with one of Credible’s partner lenders, though, you won’t have to worry about prepayment penalties.
  • Might not be a long-term solution: If you can’t avoid racking up more debt, then debt consolidation might not help you in the long run.

Before taking out a debt consolidation loan, it’s important to consider how much that loan will cost you in the future. This way, you can prepare for any added expenses. You can estimate how much you’ll pay for a loan using our personal loan calculator below.

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What you should know about bankruptcy

Bankruptcy is a legal process that lets borrowers discharge some or all of their debt. There are two types of bankruptcy you might file for: Chapter 7 or Chapter 13.

Either option could provide more comprehensive debt relief compared to a debt consolidation loan, as it allows you to legally discharge some or all of your debts — meaning you won’t be required to pay them off.

However, bankruptcy comes at a steep cost. Not only can it come with expensive fees, but it will severely damage your credit, which will limit your ability to access more credit in the future. But in some circumstances, it might be the kind of relief certain borrowers need.

If you’re thinking about filing for bankruptcy, consider these pros and cons:

Pros of bankruptcy

  • Discharges some or all of your debt: Getting out from under the burden of massive debt can give you some immediate relief.
  • Offers a hard reset for your financial life: While bankruptcy damages your finances, it also offers a way to start over. For some borrowers, this could be worth it.
  • Relatively short time period: Compared to some legal processes, bankruptcy doesn’t come with too long of a timeframe — a Chapter 7 filing is typically resolved in about six months, and a Chapter 13 filing takes three to five years.
  • Doesn’t require good credit or a cosigner: Unlike applying for a debt consolidation loan, you don’t need to worry about having good credit or a cosigner to file for bankruptcy.

Learn More: How to Check If a Personal Loan Company Is Legitimate

Cons of bankruptcy

  • Might require forfeiture of assets: If you file for Chapter 7 bankruptcy, you might lose some of your property if it’s considered nonexempt.
  • Long-term negative consequences to your credit: A bankruptcy will stay on your credit reports for seven to 10 years, depending on the type you filed for. This could make it difficult to access more credit in the future.
  • Not all debt can be discharged in bankruptcy: While bankruptcy might help you get out of credit card debt or discharge medical bills, there are other types of debt that don’t qualify. For example, you can’t discharge student loans, unpaid taxes, alimony, or child support.
  • Could be expensive: Filing fees, lawyer fees, and court fees could increase the cost of bankruptcy.

Check Out: Pay Off Credit Card Debt ASAP With a Personal Loan

14 lenders for debt consolidation you should consider before bankruptcy

Bankruptcy can offer debt relief, but it also has far-reaching effects that should never be taken lightly. Before deciding whether to file for bankruptcy, it’s a good idea to explore your other options — including debt consolidation loans.

Tip: Keep in mind that if you have poor credit or a large amount of debt, you might still be able to qualify for a debt consolidation loan, depending on the lender.

If you’re struggling to get approved, consider applying with a cosigner. Not all lenders allow cosigners on personal loans, but some do.

Even if you don’t need a cosigner to qualify, having one might get you a lower interest rate than you’d get on your own.

With Credible, you can easily compare your prequalified rates from our partner lenders in the table below in two minutes — for free and without hurting your credit.

Lender Fixed rates Loan amounts Min. credit score Loan terms (years)
avant

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9.95% – 35.99% APR $2,000 to $35,000** 550 2, 3, 4, 5*
  • Rates: 9.95% – 35.99% APR
  • Loan terms (years): 2, 3, 4, 5*
  • Loan amount: $2,000 to $35,000**
  • Fees: Origination fee
  • Discounts: Autopay
  • Eligibility: Available in all states except CO, IA, HI, VT, NV NY, WV
  • Min. income: $1,200 monthly
  • Customer service: Phone, email
  • Soft credit check: Yes
  • Min. credit score: 550
  • Time to get funds: As soon as the next business day (if approved by 4:30 p.m. CT on a weekday)
  • Loan uses: Debt consolidation, emergency expense, life event, home improvement, and other purposes

Avant personal loans review

*If approved, the actual loan terms that a customer qualifies for may vary based on credit determination, state law, and other factors. Minimum loan amounts vary by state.

**Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33.

axos

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6.49% – 29.99% APR $5,000 to $35,000 740 1, 2, 3, 4, 5
  • Rates: 6.49% – 29.99% APR
  • Loan terms (years): 1, 2, 3, 4, 5
  • Loan amount: $5,000 to $35,000
  • Fees: No prepayment penalty
  • Discounts: None
  • Eligibility: Available in all 50 states
  • Min. income: Does not disclose
  • Customer service: Phone
  • Soft credit check: Yes
  • Min. credit score: 740
  • Time to get funds: Next business day
  • Loan uses: Debt consolidation, home improvement, and other purposes

Axos Bank personal loans review

best egg

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5.99% – 29.99% APR $5,000 to $35,000 600 3, 5
  • Rates: 5.99% – 29.99% APR
  • Loan terms (years): 3, 5
  • Loan amount: $5,000 – $50,000
  • Fees: Origination fee
  • Discounts: None
  • Eligibility: Available in all states except DC, IA, VT, and WV
  • Min. income: None
  • Customer service: Phone
  • Soft credit check: Yes
  • Min. credit score: 600
  • Time to get funds: As soon as 1 – 3 business days after successful verification
  • Loan uses: Credit card refinancing, debt consolidation, home improvement, and other purposes

Best Egg personal loans review

discover

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6.99% – 24.99% APR $2,500 to $35,000 660 3, 4, 5, 6, 7
  • Rates: 6.99% – 24.99% APR
  • Loan terms (years): 3, 4, 5, 6, 7
  • Loan amount: $2,500 – $35,000
  • Fees: Late fee
  • Discounts: None
  • Eligibility: Available in all 50 states
  • Customer service: Phone
  • Soft credit check: Yes
  • Min. credit score: 660
  • Time to get funds: As soon as the next business day after acceptance
  • Loan uses: Auto repair, credit card refinancing, debt consolidation, home remodel or repair, major purchase, medical expenses, taxes, vacation, and wedding

Discover personal loans review

freedomplus

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7.99% – 29.99% APR $10,000 to $35,000 Not disclosed by lender 2, 3, 4, 5
  • Rates: 7.99% – 29.99% APR
  • Loan terms (years): 2, 3, 4, 5
  • Loan amount: $7,500 – $50,000
  • Fees: Origination fee
  • Discounts: Does not disclose
  • Eligibility: Available in all states except CO, CT, HI, KS, NH, NV, NY, ND, OR, VT, WV, WI, and WY
  • Min. income: None
  • Customer service: Phone
  • Soft credit check: Yes
  • Min. credit score: Does not disclose
  • Time to get funds: As soon as 2 business days
  • Loan uses: Debt consolidation, home improvement, wedding, travel, medical expenses, and other purposes

FreedomPlus personal loans review

lendingclub

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10.68% – 35.89% APR $1,000 to $40,000 600 3, 5
  • Rates: 10.68% – 35.89% APR
  • Loan terms (years): 3, 5
  • Loan amount: $1,000 to $40,000
  • Fees: Origination fee
  • Discounts: None
  • Eligibility: Available in all 50 states
  • Min. income: None
  • Customer service: Phone, email
  • Soft credit check: Yes
  • Min. credit score: 600
  • Time to get funds: Usually takes about 3 days
  • Loan uses: Debt consolidation, paying off credit cards

LendingClub personal loans review

Based on a majority of borrowers from LendingClub’s marketing partners who were issued loans between 1/1/19-12/13/19. The time it takes for your loan to be funded may vary.

lightstream

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3.99% – 19.99% APR $5,000 to $100,000 660 2, 3, 4, 5, 6, 7
(up to 12 years for home improvement loans)
  • Rates: 3.99% – 19.99% APR
  • Loan terms (years): 2, 3, 4, 5, 6, 7 (up to 12 years for home improvement loans)
  • Loan amount: $5,000 to $100,000
  • Fees: None
  • Discounts: Autopay
  • Eligibility: Available in all states except RI and VT
  • Min. income: Does not disclose
  • Customer service: Phone, email
  • Soft credit check: No
  • Min. credit score: 660
  • Time to get funds: As soon as the same business day
  • Loan uses: Credit card refinancing, debt consolidation, home improvement, and other purposes

LightStream personal loans review

LightStream disclosure

marcus

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6.99% – 19.99% APR1 $3,500 to $40,0002 660
(TransUnion FICO®️ Score 9)
3, 4, 5, 6, 7
  • Rates: 6.99% – 19.99% APR1
  • Loan terms (years): 3, 4, 5, 6
  • Loan amount: $3,500 to $40,0002
  • Fees: None
  • Discounts: Autopay
  • Eligibility: Available in all 50 states
  • Min. income: Undisclosed
  • Customer service: Phone
  • Soft credit check: Yes
  • Min. credit score: 660
    (TransUnion FICO®️ Score 9)
  • Time to get funds: Many Marcus customers receive funds in as little as three days
  • Loan uses: Credit card refinancing, debt consolidation, home improvement, and other purposes

Marcus personal loans review

1Rate reduction of 0.25% when enrolled in autopay.

2You may be required to have some of your funds sent directly to pay off outstanding unsecured debt.

3After making 12 or more consecutive monthly payments, you can defer one payment as long as you have made all your prior payments in full and on time. Marcus will waive any interest incurred during the deferral and extend your loan by one month (you will pay interest during this extra month). Your payments resume as usual after your deferral. Advance notice is required. See loan agreement for details.

4Your loan terms are not guaranteed and are subject to our verification of your identity and credit information. To obtain a loan, you must submit additional documentation including an application that may affect your credit score. The availability of a loan offer and the terms of your actual offer will vary due to a number of factors, including your loan purpose and our evaluation of your creditworthiness. Rates will vary based on many factors, such as your creditworthiness (for example, credit score and credit history) and the length of your loan (for example, rates for 36 month loans are generally lower than rates for 72 month loans). Your maximum loan amount may vary depending on your loan purpose, income and creditworthiness. Your verifiable income must support your ability to repay your loan. Marcus by Goldman Sachs is a brand of Goldman Sachs Bank USA and all loans are issued by Goldman Sachs Bank USA, Salt Lake City Branch. Applications are subject to additional terms and conditions.

payoff

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5.99% – 24.99% APR $5,000 to $40,000 640 2, 3, 4, 5
  • Rates: 5.99% – 24.99% APR
  • Loan terms (years): 2, 3, 4, 5
  • Loan amount: $5,000 to $40,000
  • Fees: Origination fee
  • Discounts: None
  • Eligibility: Available in all states except MA, NE, NV, and OH
  • Min. income: None
  • Customer service: Phone, email, chat
  • Soft credit check: Yes
  • Min. credit score: 640
  • Time to get funds: As soon as 2 – 5 business days after verification
  • Loan uses: Debt consolidation and credit card consolidation only

Payoff personal loans review

penfed

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5.99% – 17.99% APR $600 to $35,000
(depending on loan term)
670 1, 2, 3, 4, 5
  • Rates: 5.99% – 17.99% APR
  • Loan terms (years): 1, 2, 3, 4, 5
  • Loan amount: $600 to $35,000 (depending on loan term)
  • Fees: None
  • Discounts: None
  • Eligibility: Does not disclose
  • Min. income: Does not disclose
  • Customer service: Phone, email
  • Soft credit check: No
  • Min. credit score: 670
  • Time to get funds: 2 to 4 business days after verification
  • Loan uses: Debt consolidation, home improvement, transportation, medical, dental, life events

PenFed personal loans review

prosper

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6.95% – 35.99% APR $2,000 to $40,000 640 3, 5
  • Rates: 6.95% – 35.99% APR
  • Loan terms (years): 3, 5
  • Loan amount: $2,000 to $40,000
  • Fees: Origination fee
  • Discounts: None
  • Eligibility: Available in all states except IA, ND, WV
  • Min. income: None
  • Customer service: Phone, email
  • Soft credit check: Yes
  • Min. credit score: 640
  • Time to get funds: As soon as one business day
  • Loan uses: Debt consolidation, home improvement, vehicles, small business, new baby expenses, and other purposes

Prosper personal loans review

sofi

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5.99% – 18.83% APR $5,000 to $100,000 Does not disclose 2, 3, 4, 5, 6, 7
  • Rates: 5.99% – 18.83% APR
  • Loan terms (years): 2, 3, 4, 5, 6, 7
  • Loan amount: $5,000 to $100,000
  • Fees: None
  • Discounts: Autopay
  • Eligibility: Available in all states except MS
  • Min. income: Does not disclose
  • Customer service: Phone, email
  • Soft credit check: Yes
  • Min. credit score: Does not disclose
  • Time to get funds: 3 business days
  • Loan uses: Solely for personal, family, or household uses

SoFi personal loans review

upstart

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5.94% – 35.97% APR $1,000 to $50,000 580 3, 5
  • Rates: 5.94% – 35.97% APR
  • Loan terms (years): 3, 5
  • Loan amount: $1,000 to $50,000 ($3,005 minimum in GA; $6,005 minimum in MA)
  • Fees: Origination fee
  • Discounts: Autopay
  • Eligibility: Available in all states except IA and WV
  • Min. income: Does not disclose
  • Customer service: Email
  • Soft credit check: Yes
  • Min. credit score: 580
  • Time to get funds: Within a day of clearing necessary verifications
  • Loan uses: Debt consolidation, credit card refinancing, home improvement, and other purposes

Upgrade personal loans review

upstart

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8.27% – 35.99% APR4 $1,000 to $50,0005 580 3 to 5 years4
  • Rates: 8.27% – 35.99% APR4
  • Loan terms (years): 3 to 5 years4
  • Loan amount: $1,000 to $50,0005
  • Fees: Origination fee
  • Discounts: None
  • Eligibility: Available in all 50 states
  • Min. income: $12,000
  • Customer service: Phone, email
  • Soft credit check: Yes
  • Min. credit score: 580
  • Time to get funds: As soon as 1 – 3 business days6
  • Loan uses: Payoff credit cards, consolidate debt, take a course or bootcamp, relocate, make a large purchase, and other purposes

Upstart personal loans review

4The full range of available rates varies by state. The average 3-year loan offered across all lenders using the Upstart platform will have an APR of 24.4% and 36 monthly payments of $36 per $1,000 borrowed. There is no down payment and no prepayment penalty. Average APR is calculated based on 3-year rates offered in the last 1 month. Your APR will be determined based on your credit, income, and certain other information provided in your loan application. Not all applicants will be approved.

5This offer is conditioned on final approval based on our consideration and verification of financial and non-financial information. Rate and loan amount are subject to change based upon information received in your full application. This offer may be accepted only by the person identified in this offer, who is old enough to legally enter into contract for the extension of credit, a US citizen or permanent resident, and a current resident of the US. Duplicate offers received are void. Closing your loan is contingent on your meeting our eligibility requirements, our verification of your information, and your agreement to the terms and conditions on the www.upstart.com website.

Your loan amount will be determined based on your credit, income, and certain other information provided in your loan application. Not all applicants will qualify for the full amount. Loans are not available in West Virginia or Iowa. The minimum loan amount in MA is $7,000. The minimum loan amount in Ohio is $6,000. The minimum loan amount in NM is $5100. The minimum loan amount in GA is $3,100.

6​If you accept your loan by 5pm EST (not including weekends or holidays), you will receive your funds the next business day. Loans used to fund education related expenses are subject to a 3 business day wait period between loan acceptance and funding in accordance with federal law.

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All APRs reflect autopay and loyalty discounts where available | LightStream disclosure | Read more about Rates and Terms

Learn More: How to Get a $50,000 Personal Loan Fast

Which choice is the best decision for you?

Ultimately, the right choice between debt consolidation vs. bankruptcy will depend on your individual circumstances.

For example, if you’d like to combine multiple debts to more easily pay them off and have good enough credit to qualify for a new loan, then debt consolidation is likely the better choice — especially because it won’t damage your credit.

However, if your debt has ballooned to the point where paying all of it off is next to impossible, then bankruptcy might be a realistic option to take control of the situation despite the long-term consequences for your credit.

Tip: If you’re at the point of considering bankruptcy, it’s a good idea to discuss it with a bankruptcy attorney. This way, you can be sure you’re making the right decision.

Regardless of whether you choose debt consolidation or bankruptcy, make sure you understand how each option will affect your financial health now and in the future.

Check Out: How to Get a $100,000 Personal Loan Fast

Alternatives to debt consolidation and bankruptcy

While debt consolidation and bankruptcy are both options to ease the financial burden of debt, they aren’t your only choices. Here are a few alternatives to consider:

  • Home equity loan: Homeowners might be able to tap into the equity in their homes with a home equity loan. If you’re considering a home equity loan vs. a personal loan, keep in mind that because a home equity loan is secured by your house, you can likely get a lower interest rate on this type of loan compared to a personal loan. However, if you default on the loan, you risk losing your home.
  • Home equity line of credit (HELOC): A HELOC is another way to borrow against the equity in your home. Unlike a home equity loan, a HELOC is a kind of revolving credit — meaning you can repeatedly draw on and pay off your credit line. Just keep in mind that defaulting on a HELOC could lead to foreclosure on your home.
  • Personal line of credit: You could also think about a personal line of credit, which is a type of unsecured revolving credit. If you’re considering a personal line of credit vs. a personal loan, keep in mind that a personal line of credit might come with a higher interest rate compared to a personal loan.
  • Balance transfer card: Transferring your debt balances to a balance transfer card is another way to consolidate and pay off debt without racking up more interest charges. These cards sometimes offer a 0% APR introductory period, which means you can avoid paying interest if you can repay your balance by the time this period ends. Just remember that if you can’t pay off your card in time, you could be stuck with some hefty interest charges.
  • Credit counseling: There are nonprofit credit counseling organizations that specialize in creating debt management plans that help borrowers take control of their debt. For example, you could consider reaching out to the National Foundation for Credit Counseling or a similar trusted organization for assistance.

If you decide that a personal loan for debt consolidation is right for you, remember to shop around and compare as many lenders as you can to find a loan that best suits your needs. Credible makes this easy — you can see your prequalified rates from multiple lenders in two minutes.

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About Rates and Terms: Rates for personal loans provided by lenders on the Credible platform range between 4.99-35.99% APR with terms from 12 to 84 months. Rates presented include lender discounts for enrolling in autopay and loyalty programs, where applicable. Actual rates may be different from the rates advertised and/or shown and will be based on the lender’s eligibility criteria, which include factors such as credit score, loan amount, loan term, credit usage and history, and vary based on loan purpose. The lowest rates available typically require excellent credit, and for some lenders, may be reserved for specific loan purposes and/or shorter loan terms. The origination fee charged by the lenders on our platform ranges from 0% to 8%. Each lender has their own qualification criteria with respect to their autopay and loyalty discounts (e.g., some lenders require the borrower to elect autopay prior to loan funding in order to qualify for the autopay discount). All rates are determined by the lender and must be agreed upon between the borrower and the borrower’s chosen lender. For a loan of $10,000 with a three year repayment period, an interest rate of 7.99%, a $350 origination fee and an APR of 11.51%, the borrower will receive $9,650 at the time of loan funding and will make 36 monthly payments of $313.32. Assuming all on-time payments, and full performance of all terms and conditions of the loan contract and any discount programs enrolled in included in the APR/interest rate throughout the life of the loan, the borrower will pay a total of $11,279.43. As of March 12, 2019, none of the lenders on our platform require a down payment nor do they charge any prepayment penalties.

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