When you're mired in credit card debt that stems from outstanding balances on multiple cards, the mailer with low-rate debt consolidation checks from your credit card issuer might be the saving grace that helps you get out of debt--or are they?
Credit card issuers that give you debt consolidation--also called balance transfer--offers can also pile on the fees. A balance transfer can have a fee that's either a flat rate or a percentage of each transaction, depending on how much you're transferring.
Balance transfers also usually have a promotional interest rate that's low, but it only lasts for a fixed period of time. If you haven't paid off the outstanding balance by the end of the rate period, you'll be charged a higher interest rate. Interest also starts accruing at the time of transfer, so if you think you're in luck with a zero percent balance transfer APR and you don't pay it off by the end of the promotional rate term, you might be surprised to see how much interest you'll actually be paying.
All of these fees tucked into the fine print may be confusing and frustrating, and that's one of the reasons why Goldman Sachs decided to get into the personal loan business, with its newly launched debt consolidation loan product called Marcus.
Marcus offers unsecured personal loans to consumers to help them pay off their credit card debt. An unsecured loan means that the borrower doesn't have to put up any collateral in order to be approved for the loan. Instead, the approval and amount of the loan are based on the applicant's creditworthiness.
One of its selling points is that it doesn't charge any fees, unlike balance transfer options from other credit card issuers. Borrowers only pay their principal and interest, which is how Marcus makes its money.
Marcus is an online product, so you apply and get a response online. In the application process, you select how much money you want to borrow. Borrowers can request anywhere from $3,500 to $30,000. Once Marcus knows how much you want, it will give you some repayment options that show what you'll pay each month and how long you'll be paying it. They'll also say what the APR will be and how much in total you'll be paying back if you stick with the monthly payment.
Once you select your option, you submit your application. It'll take a couple of business days to hear about your loan status because Marcus will verify some information on your application. The site warns that triggering the loan application may affect your credit score, although just requesting the information won't.
Interest rates on personal loans will range anywhere from 5.99% to 22.99% APR. Your credit has to be really good in order to get the best rates though. Also, the longer term your repayment program is, the higher your interest rate will be. Loan terms can be as long as 72 months.
Borrowers can shorten the length of time on their loan by making pre-payments without the threat of incurring pre-payment fees. Likewise, since Marcus doesn't charge fees, there are also no late payment fees.
However, there's a special deferral program for making regular on-time payments. For every 12 consecutive months you pay your loan on time, you can defer for a month. Interest won't accrue during that month, but your loan will be extended by a month and interest will accrue on the extension.
While Marcus' loans are for debt consolidation, they specifically may not be used for educational expenses or student loan refinancing.
Whether Marcus can shake up the balance transfer business of credit card issuers remains to be seen--at the moment, loans are only available to those who received application codes via email--but its transparent efforts may be a game changer.