Discover Debt Consolidation Loan Review

Discover is a digital bank offering consumers personal loans for debt consolidation. It enjoys an A-plus rating with the Better Business Bureau and its loans come with enticingly low interest rates.

A debt consolidation loan is a personal loan you use to pay off debt. This leaves you with the same amount of debt, but now only one payment to make, possibly at lower interest rates.

According to Experian, the national average interest rate for credit cards is about 16%, and the average rate on a 24-month personal loan is about 10%. This is why so many people find debt consolidation loans attractive.

Below we’ll discuss whether debt consolidation from Discover lives up to the hype and go over ways to qualify.

Snapshot:

  • Type of Debt Relief – Debt Consolidation Loan
  • Eligibility & Requirements – U.S. citizen; household income of $25,000; 18 years or older
  • Fees – $39 late fee
  • Credit score impact – Minimal
  • Consumer Reviews – Mixed

How Discover Debt Consolidation Loans Work

To apply for a debt consolidation loan through Discover, head to their website, and click on the personal loans tab. Here are the next steps:

  • From a drop-down menu, click on the link to ‘debt consolidation loans.’
  • Plug in how much you need to borrow and for what purpose. Discover offers loan terms between 36-84 months.
  • Fill out personal info about yourself like name, address, etc.

The next step is a soft credit pull, which doesn’t affect your credit score. If you qualify, Discover runs a hard credit pull, which will drop your score for a short time. If you accept the loan terms, you can expect funds as soon as the next business day, though it could take up to a week.

If you’re having second thoughts about your new debt consolidation loan, Discover will let you return it within the first 30 days after you’ve signed, and they won’t charge you any interest.

As we stated earlier, a debt consolidation loan is a personal loan you use to pay off debt. You can ask Discover to use the funds to pay off your creditors directly, so you don’t have to go through the hassle of reaching out to each one. Discover does, however, require you to use at least 70% of the debt consolidation loan funds on consolidating loans and paying off debt.

Discover Debt Consolidation Eligibility & Requirements

Like many similar online lenders, Discover claims to take a holistic approach when reviewing applicants for potential loans. This means it will take your FICO score into account, along with your income, debt-to-income (DTI), employment status, and more.

Here are the minimum requirements for a Discover debt consolidation loan:
  1. Be a U.S. citizen or permanent resident
  2. Be at least 18 years old
  3. Have a minimum household income of at least $25,000

There’s no way to know whether you’ll qualify before applying. Fortunately, Discover offers a prequalification option, which will run a soft credit check that won’t impact your credit score but will let you see if you’ve satisfied Discover’s qualifications for a loan. Many lenders don’t offer this feature, and instead just run a hard credit check, hurting your credit score whether or not you’re approved for the loan.

Fees for Discover Debt Consolidation Loans

The only fee you have to worry about with Discover is a late fee. If you’re late, Discover will charge you $39. There are no origination or prepayment fees. You still have to pay interest, which ranges from 6.99%-24.99%. To get the lowest rate you’ll need a remarkable credit score.

Pros & Cons of Debt Consolidation with Discover

Pros of Discover

  • APR’s as low as 6.99%
  • Loans as low as $2,500
  • Pre-qualification option

Cons of Discover

  • No cosigner options
  • Maximum loans of $35,000

Discover’s 6.99% APR on its debt consolidation loans would be hard for anyone to pass up, but it’s only available to those with the best credit scores. However, the company caps APR at 24.99%, which is lower than many of its competitors. Payday lenders, for example, charge interest rates of 399% and higher.

Is a Discover Debt Consolidation Loan Right for Me?

Discover doesn’t publish extensive loan qualifications, which makes it hard to tell if you’re suited for one of its loans. Discover will work best for consumers with good credit who can qualify for its lowest interest rates. Discover offers some of the lowest rates you can find for debt consolidation loans.

Discover is still a good option for consumers with decent credit and enough income to avoid being overwhelmed by loan payments. Debt consolidation may be able to lower your interest rates and simplify payments, but it’s not debt settlement, and you will still need to repay the full amount of what you owe.

Don’t take out a debt consolidation loan and assume things will sort themselves out. You still need to stay on top of it. The upside is rather than having numerous monthly payments to juggle, you just have to keep your eye on one.

Alternatives to Discover

Don’t fret if you’re not a fan of Discover. There are other ways to consolidate your debt and save money. Below, we’ll go over a few.

Debt Management

A debt management plan offers you debt consolidation without pulling out another loan. Debt management plans reduce interest rates on your debt and arrange affordable monthly payments. You make regular payments to the debt management company and it gets your payments to your creditors on time. Not to mention, a debt management plan should reduce interest rates and may get late fees rescinded.

LightStream Debt Consolidation Loan

If Discover’s interest rates weren’t low enough, try LightStream, whose rates go as low as 5.95%. On top of this, LightStream charges zero fees. Like Discover, LightStream is tightlipped about its approval process, but for your best shot at a loan, you’ll want a FICO score of at least 660.

Avant Debt Consolidation Loan

Avant’s debt consolidation loans are for consumers with spottier credit reports and lower incomes. If your income and credit score are keeping you from taking a positive step in eradicating your debt Avant may be right for you. It accepts FICO scores as low as 580.

Discover Reputation & Consumer Reviews

Discover has an A-plus rating with the Better Business Bureau. It has few complaints regarding its debt consolidation loans. Most complaints on the BBB website concern Discover Financial Services as a whole. Customer complaints ranged from the website’s lack of information on certain financial services, to poor communication and mismanagement of accounts which led to unnecessary charges and fees.

Bents Dulcio graduated from Florida State University in 2016 with a degree in Political Science, and knows a thing or two about Millennial student loan debt. While in school, he developed a passion for classic literature, reading books by authors from Homer to Adam Smith and developed a penchant for dealing with tight financial circumstances. Bents used the student loan money to pursue a semester of language study in France that helped convince him to become a writer. Bents still hits the books – he read 70 in the past year – and still knows how to cut corners financially.

Sources:

  1. N.A. (ND) Discover Financial Services. Retrieved from https://www.bbb.org/us/il/riverwoods/profile/credit-cards-and-plans/discover-financial-services-0654-1004324
  2. N.A. (ND) Discover: Debt Consolidation Loans. Retrieved from https://www.discover.com/personal-loans/debt-consolidation-loans/
  3. Akin, J. (2020 April 15) Is a Personal Loan the Same as a Debt Consolidation Loan. Retrieved from https://www.experian.com/blogs/ask-experian/is-a-personal-loan-the-same-as-a-consolidation-loan/
  4. N.A. (ND) Discover: Frequently Asked Questions. Retrieved from https://www.discover.com/personal-loans/faqs/