Market Watch

4 Factors That Determine Interest Rates on Your Debt Consolidation Loan

Debt consolidation loan annual percentage rates (APRs) can range from about 6% to 36%, which is quite a wide spectrum, with an average about 18.56%.

According to the Federal Reserve, the average APR on credit cards was 14.75% as of February. Meanwhile, the average APR on all personal loans with a two-year term was 9.46% as of February, per the Fed.

The goal of a debt consolidation loan is to streamline multiple debts into a single, low-interest monthly payment to save money and pay off your debt more quickly. A debt payoff calculator can help you see just how much you can save and determine your debt-free date.

But if you can’t get a lower interest rate, it might not be the best idea. Here are four of the major factors that can contribute to how good (or bad) of an interest rate you’ll qualify for a debt consolidation loan.

Credit score

Your credit score has a big impact on how good of an interest rate you’ll qualify for. Typically, the higher your credit score, the better your rate. Different lenders use different scoring systems to determine creditworthiness, but the most common are FICO score and VantageScore. 

Both use a credit score range of 300 to 850. With FICO score, anything 800 or above is considered “exceptional,” and with VantageScore, anything 781 or above is considered “excellent.” In most cases anything “good” (740-799 for FICO and 661-780 for VantageScore) or above gives you the best chance of getting a good rate.

Credit history

The longer your credit history, the more your lender has to go on to determine how likely you are to repay your loan. A shorter credit history might look riskier for a lender. It’s kind of like how your dating history can be an indication for future suitors on your qualifications as a partner.

But if your payment history is strong—even if you’re not a wily veteran credit user—that can help land you a lower interest rate. Basically, make sure you always pay your bills on time.

Employment and income

Your type of employment—full-time, part-time, self-employed, hourly, salaried—can come into play when creditors determine your interest rate. And naturally, your income also factors into your interest rate. Theoretically, the more you make, the less risky you’ll be to the lender. 

But your debt-to-income ratio might be an even more important criterion. This is the overall amount of debt you owe each month compared to your monthly earnings. A lower debt-to-income ratio typically will help you get a lower rate. Some lenders even have maximum debt-to-income ratios. If you’re hovering at or above 50% DTI, you might not qualify for a debt consolidation at all, let alone a good interest rate.

Size of the loan

The amount you can borrow for a debt consolidation loan varies from lender to lender, but the minimum is $1,000 and the maximum is $100,000.

If you’re looking for a loan on the lower end of the scale, you may want to consider an alternative payoff strategy because a loan below a certain amount might mean a higher interest rate. Hey, lenders have to make money off you somehow, right? 


-Federal Reserve

By Casey Musarra

Casey Musarra is a personal finance writer with over a decade of writing experience and a credit score hovering near 800. She has written several hundred articles on topics ranging from taxes to debt-free living. Previous bylines include and