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Applying for a student loan consolidation can take approximately 30 minutes for borrowers who have their financial information on hand, according to the Federal Student Aid website. Repayment of the consolidated loan usually begins within 60 days after the loan is disbursed.

When you need to simplify your monthly student loan payments, you don’t want to waste a minute. Let’s cover the definition of consolidation, examine how long it takes to consolidate student loans, and go over the steps in the student loan consolidation process. We’ll also discuss whether it’s possible to speed up how long student loan consolidation takes.

What Is Student Loan Consolidation and How Does It Work?

“Consolidation” is just a fancy word for combining, and that’s a great first step to understand how student loan consolidation works. If you have multiple federal loans, you can combine them into a single loan using a Direct Consolidation Loan. After a free application process, consolidation gives you a single monthly payment instead of multiple bills.

A Direct Consolidation Loan may lower your monthly payment by giving you a longer repayment period (up to 30 years) or access to income-driven repayment plans — but not by lowering your interest rate. The rate you receive will be a weighted average of your prior loan rates, rounded up to the nearest ⅛ of a percent.

You can consolidate most federal student loans, including the following:

•   Direct Subsidized Loans

•   Direct Unsubsidized Loans

•   Direct PLUS Loans

•   Parent Loans for Undergraduate Students

Check the Federal Student Aid website for a complete list of qualified loans.

How do you consolidate your student loans?

•   Gather your loan records, account statements, and bills so you have everything in front of you to complete the Direct Consolidation Loan Application and Promissory Note.

•   Fill out borrower information, such as your name, address, and Social Security number, as well as the names of two adult references.

•   Next, you’ll enter the loans you want to consolidate (including requested information and codes) as well as the loans you don’t want to consolidate.

•   You’ll also walk through how you want to repay your loans and review the borrower understandings, certifications, and authorizations. Finally, sign the note, which promises that you’ll repay your loans.

How Long Does Student Loan Consolidation Take?

The federal Direct Consolidation Loan application process takes approximately six weeks from the day it is submitted. Consolidating private student loans — called refinancing – typically takes less time. Read on for details.

Federal Loans

Federal student loans come from the federal government through the U.S. Department of Education. Terms and conditions are set by law, including the interest rate.

To consolidate federal student loans, you first must fill out the Federal Direct Consolidation Loan Application and Promissory Note, which should take about 30 minutes to complete. From there, the process of consolidation takes approximately six weeks. Borrowers can check the status of their application at StudentAid.gov.

Until the consolidation process is complete, you must continue to make payments on your current loans. Once the servicer determines your loans are eligible for consolidation, you may begin paying your new loan instead.

Private Loans

Private student loans, unlike federal student loans, originate from a private lender — a bank, online lender, or credit union. You cannot change private student loans into federal student loans through the federal loan consolidation process. You also cannot consolidate private and federal student loans together.

However, you can refinance private loans. Refinancing means switching to a private lender to get a better rate or term. You can refinance a single loan or combine a number of loans to give you one new loan.

Refinancing federal student loans means that all of your loans become private loans. As a result, you lose access to federal student loan benefits like interest rate discounts and loan cancellation benefits. (You can learn more about the pros and cons in our student loan refinancing guide.)

Refinancing with a private student loan lender typically takes less time — sometimes just a few business days. However, this timeline can be longer if additional documentation is needed or if you have a coapplicant. In these cases, the timeline can vary depending on the lender and the time it takes the borrower to gather and submit the documents.

Recommended: Consolidating vs. Refinancing Student Loans

Is There Any Way to Accelerate the Student Loan Consolidation Process?

Unfortunately, you cannot accelerate the federal student loan consolidation process.

You may want to consider skipping the consolidation process altogether and refinance your student loans with a private lender, which will likely take less time. You can take a look at a student loan refinancing rate calculator to make sure it will financially work to your advantage.

Pros and Cons of Consolidating Student Loans

Why might you want to consolidate federal loans into a single federal Direct Consolidation Loan? Or why might you want to steer clear of consolidation altogether? Review the pros and cons below to get a better understanding of whether consolidating student loans is right for you.

Alternatives to Student Loan Consolidation

If you think it might take too long to consolidate your student loans or you just want a more options, you may have these alternatives available to you:

•   Deferment: If you can claim medical or financial hardship, or you’re back in school or between jobs, you may be able to pause your student loan payments through deferment.

•   Forbearance: Forbearance means that you won’t have to make a payment or that you’ll be allowed to make a smaller payment on your federal student loans.

•   Income-driven repayment plans: Income-driven repayment plans allow you to make payments based on your family size and income.

•   Modification: A student loan modification changes the terms and conditions of an existing student loan. Unlike consolidation, a modification means you keep the same loan but adjust it.

You might also consider keeping your plan and improving your financial situation in order to comfortably be able to make your payments. This will avoid the potential downsides of consolidation, like paying more in interest due to a longer loan term.

The Takeaway

If you’re tired of making multiple federal student loan payments, consolidation might be the answer. In general, the process takes about six weeks after submitting the application.

You may also consider student loan refinancing to help you manage your monthly payments. SoFi makes it easy to see what rates you may be eligible for. Plus, with SoFi, you can skip paying origination fees, application fees, and prepayment penalties.

FAQ

Does it take longer to consolidate federal or private student loans?

It typically takes six weeks to consolidate federal student loans — longer than refinancing — but you retain your federal benefits. If you’re uncertain whether you want to consolidate your federal student loans or refinance with a private student loan lender, consider shopping around before you make a final decision.

When can consolidating student loans make sense?

Consolidating can make sense if you want to reduce multiple student loans into one monthly loan payment. Additionally, if you want to lower your monthly payments, switch loan servicers, or change to a fixed-rate loan, consolidation might be worth exploring.

Why would you consolidate rather than refinance student loans?

When you’re weighing the pros and cons of consolidating vs. refinancing, it’s important to determine your goals. If simplification is your major goal, you may want to consolidate. Additionally, if you have federal student loans and don’t want to lose protections, it might be wise to forgo refinancing and instead opt for student loan consolidation.

Photo credit: iStock/TanyaJoy

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

If so, a guarantor loan might be an option worth looking into. With this type of loan, the guarantor (often a close friend or family member) agrees to repay the loan if the borrower can’t. Since this reduces risk to the lender, guarantor loans can make it possible for those with poor or limited credit to qualify for an unsecured personal loan.

However, guarantor loans come with risks and costs — for both the borrower and the guarantor. Here are some things to consider before you apply for a guarantor loan.

What Is a Loan With a Guarantor

A guarantor loan is typically an unsecured personal loan that requires the primary borrower to have a financial backer, or guarantor. A guarantor may be required because the borrower has not yet established credit or has had credit issues in the past (such as a history of late or missed debt payments). It’s still considered the borrower’s loan, but the guarantor is legally obligated to cover payments and any other fees if the borrower defaults on the agreement.

This guarantee reduces the lender’s risk and enables them to advance the money at a reasonable annual percentage rate (APR). However, APRs for guarantor loans are generally higher than APRs for regular personal loans.


💡 Quick Tip: Need help covering the cost of a wedding, honeymoon, or new baby? A SoFi personal loan can help you fund major life events — without the high interest rates of credit cards.

How Do Guarantor Loans Work?

Guarantor loans work in the same way as other types of personal loans — you borrow a lump sum of money from a lender, which you are able to use for virtually any purpose. You then pay it back (plus interest) in monthly installments over a set period of time, which may be anywhere from one and seven years.

The only difference is that a third party (your guarantor) is part of the loan agreement. The guarantor is legally bound to make payments on the loan in the event that you default. A loan default is generally defined as missing payments for several months in a row but the exact meaning will depend on the lender.

While the guarantor bears responsibility for repaying the debt, this individual doesn’t have any legal right to the loaned money or anything purchased with the loan proceeds.

Are You Guaranteed to Get a Loan With a Guarantor?

Although it can certainly help your case, there’s no guarantee that you’ll qualify to take out a loan with a guarantor. Approval depends on the financial profiles of you and your guarantor and the eligibility requirements of the lender.

Who Can Be a Guarantor for Loans?

A guarantor doesn’t need to be anyone specific — it could be a parent, sibling, friend, or even a colleague. You generally want to choose someone you trust and feel comfortable openly discussing your finances with. That’s most likely going to be a family member or a close friend.

Guarantors also need to have a good credit history and typically be at least age 18 (though some lenders require a higher minimum age). Some lenders also require the guarantor to be a homeowner. As part of the application process, guarantors will need to undergo a credit check and provide proof of identification and income, as well as bank details and statements.

What Should I Look for in a Guarantor Loan?

Like any other loan, it’s generally a good idea to look for a guarantor loan with a competitive APR and low or no fees. You’ll also want to carefully consider the monthly payments and be sure you can comfortably afford to make them. While this is crucial with any loan, it’s particularly important with a guarantor loan, since your guarantor will be on the hook for repayment if you fall behind. This could impact your credit as well as put a significant strain on your relationship with your guarantor.

How Much Can I Borrow for a Guarantor Loan?

Many lenders offer personal loan amounts ranging anywhere from $500 to $50,000 (and sometimes up to $100,000 for borrowers with excellent credit). Loan amounts for guarantor loans will depend on which lender you choose as well as your financial situation and your guarantor’s credentials (such as their credit score and income).

Guarantor Loan Requirements

Guarantor loans have eligibility requirements such as minimum credit scores and income thresholds that the guarantor will have to meet. Here’s a closer look.

Credit Score

While the borrower’s credit score might be poor or fair, the guarantor’s credit score should be considerably higher in order to secure the loan.

Proof of Residency

A guarantor will need to provide proof of residency. This can be done by showing documents such as a utility bill, a mortgage or rental agreement, or bank statements.

Income

The guarantor will need to verify a consistent income that’s sufficient to make payments on the loan if the primary borrower cannot. They will need to be able to show proof of income through bank account statements, pay stubs, invoices, and/or tax returns.

Age Requirements

The guarantor must be at least 18 years old, though some lenders have an age requirement of 21 or 22. They will need to show proof of age (and identity) with a government-issued photo ID.

Recommended: How to Apply for a Personal Loan

Types of Guarantors

Guarantors aren’t just for personal loans, and they don’t always take on the full financial responsibility of the agreement they’re entering into. Here’s a look at some different types of guarantors.

Guarantors as Certifiers

A guarantor may act as a certifier for someone looking to land a job or get a passport. These guarantors pledge that they know the applicant and they are who they say they are.

Limited vs Unlimited

Acting as a guarantor doesn’t always mean you’re responsible for the entire loan if the primary borrower fails to repay it. Limited guarantors are liable for only part of the loan or part of the loan’s timeline. Unlimited guarantors, however, are responsible for the full amount and full term of the loan.

Lease Guarantor

A guarantor may be required to cosign an apartment lease if the renter has limited credit and income history. In the event that the tenant is unable to pay the rent or prematurely breaks the lease agreement, the guarantor is responsible for paying any money owed to the landlord.

Guarantors vs Cosigners

Guarantors and cosigners play similar roles in a lending agreement — they pledge their financial responsibility for the debt to strengthen the primary borrower’s application. And, in both cases, these individuals may become responsible for repaying the debt.

However, there are some key differences between a guarantor and a cosigner. The main one is that a cosigner is responsible for repayment of the debt as soon as the agreement is final and will need to cover any missed payments. A guarantor, on the other hand, is only responsible for repayment of the debt if the primary borrower defaults on the loan.

There are also differences in terms of credit impacts. A cosigner will have the loan added to their credit report and any positive or negative payment information that the lender shares with the consumer credit bureaus can have a positive or negative impact on their credit. Becoming a guarantor, on the other hand, will typically not have an impact on an individual’s credit unless the primary borrower defaults on the loan. At that point, the loan will appear as part of the guarantor’s credit report.

Pros and Cons of Guarantor Loans

A guarantor loan can allow you to borrow money even if you have limited or less-than-ideal credit. It can also help you avoid expensive and risky subprime loans that are marketed to borrowers with bad credit. In addition, the proceeds of a guarantor loan can be used for virtually any purpose, including emergency expenses (such as a car repair or medical bill) and lifestyle expenses (like a wedding or home improvement project).

As with all forms of credit, getting a guarantor loan can help you establish or build your credit, provided you manage the debt responsibly and keep up with your payments. Stronger credit can give you access to loans with better rates and terms in the future, without the need for a guarantor.

But these loans also come with some downsides. For one, guarantor loans can be expensive, often with higher APRs than other types of personal loans. Also, you’ll want to make sure you can keep up with the payments. Should you default, you’ll not only be hurting yourself but also the person who signed on as your guarantor.

Another downside is that there are fewer guarantor loans on the market than traditional personal loans. This can lead to less choice of lenders, making it harder to shop around and find a good deal.


💡 Quick Tip: Just as there are no free lunches, there are no guaranteed loans. So beware lenders who advertise them. If they are legitimate, they need to know your creditworthiness before offering you a loan.

What Happens if a Guarantor Cannot Pay?

A guarantor is legally obligated to repay the loan if the primary borrower defaults. If the borrower defaults and the loan is a secured loan, then the guarantor’s home could be at risk if the borrower defaults on the repayments and the guarantor is also unable to pay. This is not the case for unsecured guarantor loans, but the lender will still pursue the guarantor for the repayment of the debt, possibly through the courts.

Alternative Options to a Guarantor Loan

What if you don’t have a trusted person to ask to be your guarantor or you don’t want to ask anyone to take on this responsibility? Here are some alternatives to a guarantor loan that you could consider.

•   Secured credit card: If you have some cash, you could pledge that as collateral on a secured credit card. Responsible use of this type of credit card could help you build your credit history so you can improve your chances of future loan approval. Interest rates on secured credit cards can be higher than regular credit cards, and there may be fees associated with their use.

•   Flex loan: A line of credit that is similar to a credit card, a flex loan can also be used to build credit. Borrowers can use funds up to their credit limit, repay those funds, and borrow them again. Interest rates on flex loans tend to be high, and there may be fees assessed daily or monthly or each time the loan is used.

•   Loan from a friend or family member: Perhaps the person you ask to be a guarantor doesn’t want to take on that responsibility, but they are willing to directly loan you the money. A loan from family or a friend can be an option to consider, but you’ll want to be sure to have a written agreement outlining the expectations and responsibilities of both parties. This will go a long way to minimizing miscommunication and hurt feelings. Keep in mind that this is not an option that will help you build your credit history.

The Takeaway

Getting approved for an unsecured personal loan is more likely if you have a solid credit history, an above-average credit score, and sufficient income to satisfy a lender’s qualification requirements. If you’re lacking one or more of these things, you might consider other types of loans, which might include a guarantor loan.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

FAQ

What are guarantor loans?

A guarantor loan is typically a type of personal loan that requires the primary borrower to have a financial backer, or guarantor. The guarantor agrees to pay the debt if the primary borrower defaults on the loan agreement.

How do I get a guarantor for a loan?

You might consider asking a trusted friend or family member to be a guarantor. This person should be someone who has solid credit and sufficient income to cover the loan payments should you default on the loan.

Are you guaranteed to get a loan with a guarantor?

No. Having a guarantor may strengthen a loan application, but it’s up to each individual lender to assess the qualifications of both parties.

Photo credit: iStock/fizkes

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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When you apply for a mortgage, any outstanding debts you have — including personal loans, credit cards, and auto loans — can impact how much of a mortgage you can get, and whether you even qualify in the first place.

If you’re planning to buy a home in the next couple of years, applying for a personal loan could potentially reduce how much you can borrow. A personal loan can also affect your credit — this impact could be positive or negative depending on how you manage the loan.

Whether you’re thinking about getting a personal loan or currently paying one off, here’s what you need to know about how personal loans interact with mortgages.

How Do Personal Loans Work?

A personal loan is a lump sum of money borrowed from a bank, credit union, or online lender that you pay back in fixed monthly payments, or installments. Unlike mortgages and auto loans, personal loans are typically unsecured, meaning there’s no collateral (an asset that a borrower pledges as security for a loan) required.

Lenders typically offer loans from $1,000 to $50,000, and this money can be used for virtually any purpose. Common uses for personal loans include:

•   Debt consolidation

•   Home improvement projects

•   Emergencies

•   Medical bills

•   Refinancing an existing loan

•   Weddings

•   Vacations

Personal loans usually have fixed interest rates, so the monthly payment is the same for the term of the loan, which can range from two to seven years. On-time loan payments can help build your credit score, but missed payments can hurt it.


💡 Quick Tip: Some lenders can release funds as quickly as the same day your loan is approved. SoFi personal loans offer same-day funding for qualified borrowers.

Can Personal Loans Affect Mortgage Applications?

Yes, getting a personal loan could impact a future mortgage application. When you apply for a mortgage, the lender will look at your full financial picture. That picture includes your credit history (how well you’ve managed debt in the past), how much debt you currently have (including personal loans, credit cards, and other debt), your income, and credit score.

Depending on your financial situation, getting a personal before you buy a house could have a positive or negative impact on a mortgage application. Here’s a closer look.

Negative Effects

A personal loan could have a negative impact on your mortgage application if the loan payments are high in relation to your income. A lender may worry that you don’t have enough wiggle room to cover your current expenses and debts, plus a mortgage payment.

A personal loan also impacts your credit score. If you’ve missed payments or paid late, this impact could be negative. A lower credit score can make it more difficult to get a mortgage, especially one with a competitive interest rate.

Positive Effects

If you have a personal loan that is a reasonable size (relative to your income), your personal loan payment history shows that you regularly pay on time, and you’re consistently paying down any other debts, a mortgage lender could see that as a positive indicator that you’d likely be a low-risk investment.

How Personal Loans Can Affect Getting a Mortgage

Here’s a closer look at the ways in which getting a personal loan can affect your ability to get a home mortgage.

Credit Score

Your credit score is one indication to a lender of how likely you are to be to repay a loan — or, in other words, how much risk your represent to the lender. A personal loan can affect your credit score in several different ways. These include:

Payment History

Your bill-paying track record has the most weight when it comes to your credit score. That means if you make regular, on-time payments on a personal loan, it could have a positive impact on your credit. That, in turn, could have a positive impact when applying for a mortgage.

Not making regular, on-time payments on your personal loan, on the other hand, can negatively impact your credit, leaving you with higher-rate interest rate options on a mortgage.

New Credit

When you apply for a personal loan, the lender will run a hard credit inquiry. This type of credit check can have a small negative impact on your credit for 12 to 24 months. As a result, applying for a personal loan (or any type of new credit) can negatively impact your credit score in the short term.

Credit Mix

Having a variety of different account types can be good for your credit. If your credit report only has revolving accounts, like credit cards, getting a personal loan (which is a type of installment credit) could diversify your credit mix and have a positive influence on your credit score.

Debt-to-Income Ratio

Your debt-to-income (DTI) ratio refers to the total amount of debt you carry each month compared to your total monthly income. Your DTI ratio doesn’t directly impact your credit score, but it’s an additional factor lenders may consider when deciding whether to approve you for a new credit account, such as a mortgage. Having a personal loan will increase your debt load and, in turn, your DTI ratio.

To calculate your DTI ratio, you add up all your monthly debt payments and divide them by your gross monthly income (that’s your income before taxes and other deductions are taken out). Next, convert your DTI ratio from a decimal to a percentage by multiplying it by 100.

In general, the highest DTI ratio you can have and still get qualified for a mortgage is 43% (including the mortgage payment). However, lenders prefer a DTI ratio lower than 36%, with no more than 28% of that debt going towards mortgage payments.

Recommended: First-Time Home Buyer Guide

Should You Pay Off Your Personal Loan Before Applying for a Mortgage?

If you already have a personal loan, are close to the end of your repayment term, and can afford to pay off the remainder before applying, eliminating the debt could improve your chances of getting the mortgage amount you’re looking for.

Another reason why you may want to pay off your personal loan before buying a home is that home ownership generally comes with a lot of additional expenses. Not having a personal loan payment to make each month can free up cash you may need for other things, like mortgage payments, homeowners insurance, and more.

That said, if paying off a personal loan will use up money you had earmarked for a downpayment on a home or leave you cash poor (with no emergency fund), it might be better to keep making your monthly payments, rather than pay off your personal loan early.


💡 Quick Tip: If you’ve got high-interest credit card debt, a personal loan is one way to get control of it. But you’ll want to make sure the loan’s interest rate is much lower than the credit cards’ rates — and that you can make the monthly payments.

Tips To Help Your Mortgage Application

Generally speaking, having a personal loan won’t make or break your odds of getting a mortgage. If you’re concerned about being approved, however, here are some steps that can help.

•   Review your credit report and correcting any errors or any discrepancies.

•   Consider paying down debt to lower your DTI ratio.

•   Avoid applying for new credit leading up to your mortgage application.

•   Consider taking some time to increase your down payment amount (the more you can put down, the less risk you pose to a lender).

•   Research and compare lenders and their products, rates, and terms before deciding who you’ll work with.

•   Lock in your interest rate when you get an offer that works for your financial situation.

Recommended: 5 Tips for Finding a Mortgage Lender

The Takeaway

A personal loan can have a negative or positive impact on your mortgage application. If you’re not planning to apply for a mortgage right away, and can comfortably manage the personal loan payments (and possibly even pay off the loan early), getting a personal could have a positive effect on your credit and make it easier to get a mortgage.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

Photo credit: iStock/kate_sept2004

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Getting a personal loan is typically a simple process but many lenders require at least a good credit rating and a stable income for approval. Banks tend to have stricter qualification requirements than private lenders. The type of personal loan you get — secured or unsecured — can also have an impact on how hard the loan is to get.

Once approved, a personal loan offers a lot of flexibility — you can use the funds for a wide variety of expenses, from planned home repairs to unexpected medical bills. Unlike loans with a specified purpose, like an auto loan or mortgage, personal loan funds can be used for virtually any type of expenditure.

Here’s what you need to know about personal loans and how to increase the chances that you’ll qualify.

Types of Personal Loans

A personal loan is essentially a lump sum of money borrowed from a bank, credit union or online lender that you pay back in fixed monthly payments, or installments. Lenders typically offer loans from $1,000 to $50,000, and this money can be used for virtually any purpose. Repayment terms can range from two to seven years.

While there are many different types of personal loans, they can be broken down into two main categories: secured and unsecured. Here’s how the two types of personal loans work:

•   Secured personal loans are backed by collateral owned by the borrower such as a savings account or a physical asset of value. If the loan goes into default, the lender has the right to seize the collateral, which lessens the lender’s risk.

•   Unsecured personal loans do not require collateral. The lender advances the money based simply on an applicant’s creditworthiness and promise to repay. Because unsecured personal loans are riskier for the lender, they tend to come with higher interest rates and more stringent eligibility requirements.


💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. One question can save you many dollars.

Getting a Personal Loan From a Bank

In addition to the type of personal loan you choose, the lender you borrow from can have an effect on how hard the loan is to get. For many borrowers, their bank is an obvious first choice when the time comes to take out a personal loan.

Banks sometimes offer lower interest rates than other lenders, particularly if you’re already an account holder at that bank. However, they may also have steeper eligibility requirements, such as a higher minimum credit score. Compared to an online lender, banks tend to have a more time-consuming application process, and the loan may take longer to disburse.

Still, the convenience of utilizing the bank you’re already familiar with and the comfort of in-person customer service may be worth the trade-off for qualified borrowers.

Getting a Personal Loan From a Private Lender

A private online lender is a non-institutional lender that is not tied to any major bank or corporation. Online lenders are less regulated than banks, allowing faster application processes and more lenient eligibility requirements. However, some online lenders will have higher interest rates and fees compared to traditional banks, so it’s key to shop around. One of the biggest advantages of a private online lender is convenience. You can complete the entire process online and funding is typically available within the week.

Recommended: What Are Personal Loans & How Do They Work?

Is It Harder to Get a Personal Loan From a Bank or Private Lender?

Generally speaking, it may be more difficult to get a personal loan from a bank than a private lender — but your best bet is to shop around and compare a variety of personal loan options, then see where you’ll get the best interest rate.

Here are the basic differences between getting a personal loan from a bank versus a private lender at a glance:

Is It Easier to Get a Small Personal Loan?

Generally, yes. Loan size is another important factor that goes into how hard it is to get a personal loan. It’s much less risky for a lender to offer $1,000 than $50,000, so the eligibility requirements may be less stringent — and interest rates may be lower — for a smaller loan than for a larger loan.

That said, there are exceptions to this rule. Payday loans are a perfect example. Payday lenders offer small loans with a very short repayment timeline, yet often have interest rates as high as 400% APR (annual percentage rate). Even for a smaller personal loan, it’s generally less expensive to look for an installment loan that’s paid back on a monthly basis over a longer term.

Recommended: How Much of a Personal Loan Can I Get?

What Disqualifies You From Getting a Personal Loan?

There are some financial markers that can disqualify you from getting a personal loan, even with the most lenient lenders. Here are a few to watch out for.

Bad Credit

While the minimum required credit score for each lender will vary, many personal loan lenders require at least a good credit score — particularly for an unsecured personal loan. If you have very poor credit, or no credit whatsoever, you may find yourself ineligible to borrow.

Lack of Stable Income

Another important factor lenders look at is your cash flow. Without a regular source of cash inflow, the lender has no reason to think you’ll be able to repay your loan — and so a lack of consistent income can disqualify you from borrowing.

Not a US Resident

If you’re applying for personal loans in the U.S., you’ll need to be able to prove residency in order to qualify.

Lack of Documentation

Finally, all of these factors will need to be proven and accounted for with paperwork, so a lack of official documentation could also disqualify you.

How to Get a Personal Loan With Bad Credit

If you’re finding it hard to get a personal loan, there are some steps you can take to improve your chances of approval. Here are some to consider.

Prequalify With Multiple Lenders

Every lender has different eligibility requirements. As a result, it’s worth shopping around and comparing as many lenders as you can through prequalification. Prequalification allows you to check your chances of eligibility and predicted rates without impacting your credit (lenders only do a soft credit check).

Consider Adding a Cosigner

If, through the prequalification process, you find that you don’t meet most lender’s requirements, or you’re seeing exorbitantly high rates, you might check to see if cosigners are accepted.

Cosigners are family members or friends with strong credit who sign the loan agreement along with you and agree to pay back the loan if you’re unable to. This lowers the risk to the lender and could help you get approved and/or qualify a better rate.

Include All Sources of Income

Many lenders allow you to include non-employment income sources on your personal loan application, such as alimony, child support, retirement, and Social Security payments. Lenders are looking for borrowers who can comfortably make loan payments, so a higher income can make it easier to get approved for a personal loan.

Add Collateral

Some lenders offer secured personal loans, which can be easier to get with less-than-ideal credit. A secured loan can also help you qualify for a lower rate. Banks and credit unions typically let borrowers use investment or bank accounts as collateral; online lenders tend to offer personal loans secured by cars.

Just keep in mind: If you fail to repay a secured loan, the lender can take your collateral. On top of that, your credit will be adversely affected. You’ll want to weigh the benefits of getting the loan against the risk of losing the account or vehicle.


💡 Quick Tip: If you’ve got high-interest credit card debt, a personal loan is one way to get control of it. But you’ll want to make sure the loan’s interest rate is much lower than the credit cards’ rates — and that you can make the monthly payments.

The Takeaway

You can use a personal loan for a range of purposes, such as to cover emergency expenses, to pay for a large expense or vacation, or to consolidate high-interest debt. Personal loans aren’t hard to get but you usually need good credit and a reliable source of income to qualify. The better your financial situation, generally the lower the interest rate will be.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

FAQ

Is it hard to get a personal loan?

Personal loans aren’t necessarily hard to get but you typically need good credit and reliable income to qualify. Secured personal loans (which require pledging something you own like a savings account or vehicle) are generally easier to qualify for than unsecured personal loans

Is it hard to get a personal loan from a bank?

Banks tend to have more stringent qualification requirements for personal loans than private online lenders. Getting a personal loan from a bank can be a good move if you have good to excellent credit, an existing relationship with a bank, and time for a longer approval process.

What disqualifies you from getting a personal loan?

You will be disqualified for a personal loan if you do not meet a lender’s specific eligibility requirements. You may get denied if your credit score is too low, your existing debt load is too high, or your income is not high enough to cover the loan payments.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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It’s possible to refinance your student loans with bad credit, but you may face challenges getting approved with a low credit score. This may also lead to a higher interest rate.

When you refinance your student loans, a private lender will take a look at your credit score to evaluate how well you’ve paid off debt in the past. A higher credit score may improve your chances of approval and could help you secure a more competitive interest rate. But your credit score isn’t the only factor lenders review. Lenders typically also take a look at your income, current employment situation, and financial history.

Read on for strategies to refinance student loans with bad credit.

What Is Student Loan Refinancing?

Refinancing student loans means that you take some or all of your student loans and replace them with one new loan to achieve a repayment advantage. For example, you may refinance in order to get a lower interest rate and, as a result, pay less over the life of your loan. You may also refinance to extend your loan term, which will lower your monthly payments (but doing so will also result in paying more interest over time).

You can refinance both private and federal student loans. As you are deciding when to refinance student loans it’s important to understand that if you refinance federal student loans, you lose certain benefits with your loan, such as deferment and public service-based loan forgiveness.


💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.

What Is Considered Bad Credit?

Your credit score is a three-digit number that shows how well you pay back debt.

What is a bad credit score? The definition of “bad credit” varies depending on the credit scoring model used. A credit scoring model is a statistical analysis used by credit bureaus to evaluate your creditworthiness. “Bad credit” simply means that your credit reports, or records of how well you’ve paid off debt, reveal negative credit actions that you’ve had in the past.

According to FICO®, one of the most popular scoring models, a bad credit score is anything below 670. Another popular scoring model, VantageScore, considers a bad credit score below 661. To put it in perspective, a credit score ranges from 300 to 850.

Some lenders require a minimum credit score to refinance student loans. Requirements vary by lender, so check in with the lenders you are considering to understand their minimum requirements. And keep in mind that lenders evaluate factors beyond just your credit score when making lending decisions.

Strategies for Refinancing With Bad Credit

If you plan on refinancing student loans with bad credit, you may want to consider backtracking and checking your credit reports. There may be mistakes on your credit reports that are hurting your credit score. For example, you have already paid off a particular loan but your credit report shows that you haven’t yet.

You can obtain a free copy of your credit report at AnnualCreditReport.com from each of the three major credit bureaus — Equifax, Experian, and TransUnion — which track your credit.

There are other strategies you can consider as well: refinancing with a cosigner, improving your credit score or debt-to-income (DTI) ratio, looking into credit unions, considering nonprofit debt consolidation, checking into secured loans, and looking for lenders with lower credit requirements. Let’s take a look at each option for student loan refinance for bad credit.

Refinance With a Cosigner

If you have a relatively low credit score, applying with a cosigner increases your chances of getting approved for a student loan refinance.

Refinancing student debt with a cosigner means that you ask someone else to agree to help you repay a loan along with you. Cosigners are equally obligated to repay a student loan and are liable if you fail to repay your loan. Any missed payments will affect both you and your cosigner’s credit history.

Build Your Credit Score

You can build your credit score by making payments on time to your creditors, catching up on accounts for which you still owe money, and limiting credit applications. Let’s take a look at all of these student loan refinance need to know opportunities to build your credit score:

•   Make on-time payments: Making all payments on time is one of the best ways to improve your credit score. You may want to consider setting up auto pay to avoid missing or making late payments.

•   Pay off delinquent or defaulted accounts: If you have accounts for which you still owe money, pay them off. Pulling all accounts up to “paid” status can help your credit score. If you think you need help organizing and prioritizing, you may want to reach out to a credit counselor for assistance. It’s also a good idea to get current on revolving credit balances (such as credit cards and other lines of credit) because paying late or skipping payments can hurt your credit as well.

•   Limit credit applications: Continually applying for credit can hurt your credit score because every time a lender does a hard credit check, your credit takes a small hit. All of those credit checks can slow your progress in improving your credit score.

Building credit by doing things like making on-time payments is one of the best ways to improve your credit score. Use credit cards responsibly and pay off the balance each month, get a secured credit card, or become an authorized user on another individual’s credit card.

Improve Your Debt-to-Income Ratio

What is a debt-to-income (DTI) ratio? DTI refers to your monthly debt payments divided by your gross monthly income — the amount of money you have coming into your household.

The best way to improve your DTI is to reduce your debt payments each month or add more income to your household each month. There are several ways to make this happen: paying off your debt (including credit cards, personal loans, auto loans), adding a second or side job to your already-existing income, negotiating a raise at work, working overtime, or applying for a higher-paying job.

Recommended: Why Your Debt to Income Ratio Matters

Check Credit Union Requirements

In addition to banks, online lenders, and other types of lenders, credit unions also offer student loan refinancing opportunities. A credit union is a non-profit financial services cooperative that exists to serve its members. You must be a member of a credit union in order to borrow money from it.

If you already belong to a credit union, consider finding out the credit qualifications necessary for refinancing student loans with that credit union. Shop around among credit unions or other alternative banking solutions to learn more about interest rates, overall payoff amounts, repayment flexibility, and how well each institution treats its customers.

Nonprofit Debt Consolidation

Nonprofit debt consolidation can help you put all of your debts into one manageable payment. It offers a two-pronged advantage: You lower your monthly payment and eventually eliminate unsecured debt, which is debt that isn’t backed by collateral.

Credit card debt is a good example of a debt not backed by collateral. A mortgage, on the other hand, is backed by collateral — the collateral is the home that you borrowed money to purchase. A student loan is a type of unsecured debt because it is not backed by collateral.

Why tap into a nonprofit credit counseling agency for help? They must act in your best interest, though you will have to pay fees for the service. Trained debt counselors can help you come up with a debt payment plan, debt settlement plan, debt consolidation loan, or, if absolutely necessary, declare bankruptcy.

It’s important to note that only unsecured debt is eligible for consolidation.

Secured Loans

Secured loans are backed by collateral, such as a car (in the case of an auto loan) or a house (in the case of a mortgage). If you stop making your payments, the lender can take the collateral backing your loan (the auto or home) to satisfy the debt.

Generally, personal loans are unsecured and can be used for almost any expense. However, some personal loans may be secured by some form of collateral. When evaluating a secured vs. unsecured personal loan, look at things like the interest rate and the type of collateral required to back the loan. Keep in mind that collateral can be seized by the lender if there are issues with repayment.

However, you can use a secured loan to pay for a student loan refinance if you find better terms through a secured loan. For example, you could choose to get a second mortgage to pay for educational expenses.

Unsecured debt is usually considered riskier by lenders (because it isn’t backed by collateral) and may come with a higher interest rate, which is why secured debt may seem more appealing.

Look for Lenders With Lower Credit Requirements

Think you’re ready to pursue a student loan refinance with lower credit requirements? Let’s take a look at the pros and cons of doing so.

In order to get the best rates and terms, you may want to consider beefing up your credit score before you apply for a refinance. Consider taking a look at a calculator for student loan refinancing to help you learn about the costs.

Alternatives to Refinancing Student Loans

Refinancing your student loans isn’t your only option. Keep in mind that refinancing federal loans eliminates them from federal programs and protection like income-driven repayment (IDR) plans. You may also want to consider a few alternatives, including consolidation, forgiveness, deferment, or forbearance (for federal student loans), or talk to your lender about your options.

•   IDR plans: The U.S. Department of Education has a website called Federal Student Aid where student loan holders can find four types of IDR plans. They are, with the repayment terms, as follows:

◦   IDR Pay As You Earn (PAYE) Plan: 20 years

◦   Saving on a Valuable Education (SAVE) Plan: 10 or 25 years

◦   Income-Based Repayment (IBR) Plan: 20 or 25 years

◦   Income-Contingent Repayment (ICR) Plan: 25 years

•   Consolidation: Consolidation allows you to combine all of your federal student loans into one monthly payment with one servicer. Consolidation won’t lower your interest rate — the new rate is the weighted average of your existing interest rates. You cannot consolidate private student loans — you may only refinance them.

•   Forgiveness: If you have federal student loans, you may want to consider looking into student loan forgiveness options, which means that you do not have to repay your loans in part or full if you meet specific requirements. For example, you may be able to tap into teacher loan forgiveness, Public Service Loan Forgiveness (PSLF), income-driven repayment plans, military service forgiveness, or other options.

•   Deferment or forbearance: Deferment and forbearance allow you to temporarily postpone or reduce your payments. Borrowers with federal loans may qualify to defer repayment due to cancer treatment, economic hardship, graduate school, military service and post-active student duty, rehabilitation training, unemployment, and more. Private lenders may have their own programs for forbearance. Check in with your private lender directly.

•   Talk to your lender or loan servicer: You can also talk through all your payment options with your loan servicer. If you’re having trouble making your payments, explain how and why (and be prepared to show proof).

The Takeaway

Borrowers with a low credit score (a bad credit score is defined as a FICO score below 670 or a VantageScore below 661), may find it challenging to get a student loan refinance with bad credit without a cosigner.

However, there are other avenues you can take for student loan refinancing with bad credit, including improving your credit score, improving your DTI, researching options with a credit union, non-profit debt consolidation, or getting a secured loan. You may also want to consider alternatives to refinancing private student loans with bad credit if you have federal student loans, through consolidation, forgiveness, deferment, or forbearance. You may also try talking to your lender or loan servicer for all your options, asking them about alternative options to refinance a student loan with bad credit.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

Photo credit: iStock/Vladimir Vladimirov

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

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