PenFed Debt Consolidation Review

When high-interest credit card debt throws a wrench in your cash flow, a debt consolidation loans can help smooth things out. Credit unions can be a good solution for some borrowers, because they’re nonprofit member-owned organizations, so they are able to offer lower rates than for-profit lenders.

PenFed, officially Pentagon Federal Credit Union, was founded in 1935 as the War Department Federal Credit Union to provide banking services for civilian employees of what was then the U.S. Department of War. In 1947, it became the Pentagon Federal Credit Union, and eventually grew to provide banking for anyone in the armed forces and associated civilians. Today, with 2.9 million members and $35.5 billion in total assets, it’s the second-largest federal credit union in the U.S. and is an online banking source for military personnel and their families stationed overseas.

Many credit unions require members to be residents of a specific geographic region or associated with a business or organization, but PenFed membership has no restrictions and is open to anyone, regardless of whether they’re in the military. One requirement for loan approval is that you must become a member.

Because it’s a credit union, its debt consolidation loans have lower rates than many other online lenders. PenFed has physical branches in 13 states, Washington, D.C., Guam, and Puerto Rico, but also has a solid online presence because of its military focus, including ATM access.

Find out if PenFed is the right solution to consolidate your debt. If it’s not, there are alternatives that may be.

Snapshot:

• Type of Debt Relief – Debt consolidation loan
• Eligibility and Requirements – Must be a member, a U.S citizen or permanent resident, and be 18 years or older.
• Fees – 7.74%-17.99% APR; $29 late fee; $30 returned payment free
• Credit score impact – Minimal to check rates; hard pull to apply
• Consumer Reviews – Positive

How PenFed Debt Consolidation Loans Work

PenFed offers personal loans for debt consolidation of up to $50,000, with terms of up to 60 months. Online borrowers are accepted from all 50 states, Washington, D.C., and Guam, Puerto Rico, and Okinawa.

You don’t have to be a PenFed member to check your rate for a debt consolidation loan, but if you are approved for a loan, you must become one.

Borrowers apply online by first checking rates, which is a soft credit pull that won’t affect your credit score. If you pursue a loan after checking your rates, it means full credit inquiry and a hard pull on your credit report, which may have a negative impact briefly on your credit score.

When you check rates, you’ll get offers that have different APRs and terms to choose from. If you proceed from there, PenFed will verify your income and identity. You’ll be asked to upload copies of documents like pay stubs, retirement statements, bank statements and tax returns, as well as an image of your driver’s license, passport, or Social Security card.

If you can afford larger monthly payments, a short-term loan is a good idea. A 26-month $50,000 loan at 7.79% APR would be a monthly payment of $1,560.83, for instance.

If you can’t afford a large monthly payment, a longer loan term may still be a good option but be aware you’ll pay more in interest overall. There is no minimum amount for a loan, but all PenFed loans require a minimum monthly payment of $50.

Your APR will be determined when your loan is disbursed. It will be based on the term (length of repayment period), creditworthiness, and length of your PenFed membership. If your credit isn’t great and you were hoping for an offer with a better rate, PenFed allows co-borrowers. A co-borrower with good credit can help lower the rate you’re offered.

Unlike some debt consolidation loans, PenFed sends the money to you, not to your creditors. It’s up to you to pay off your credit cards and other high-interest debt once the money is in your account. You will have it as soon as one business day, depending on what time of day you’re approved and your financial institution. Borrowers who opt to get payment by check will get it within 5-7 business days.

PenFed has 50 branches in 13 states, but most of its services are online, and statements and other documents are all digital.

PenFed Eligibility and Requirements

Once you’re approved for a loan, you must become a PenFed member, which actually means becoming one of its owners. The approval process will walk you through it online, but in simple terms it means you must also open a savings account with a $5 deposit. This is called a share account because you now own a share of the credit union.

If you’re already a member, that’s a big benefit when it comes to what you’ll pay on a loan, since length of membership is one factor that determines APR. If you think you may want a PenFed loan in the future, becoming a member by opening a savings account for $5 isn’t a bad idea.

PenFed does not disclose a credit score requirement, but applicants should aim for a score of at least 600 for approval.

Fees for PenFed Debt Consolidation Loans

PenFed’s APRs are 7.79%-17.99%, and the amount borrowers get is based on credit worthiness, loan term and length of PenFed membership.

Unlike many online lenders, PenFed doesn’t charge an origination fee. It also doesn’t charge an early payoff fee.

PenFed does charge a late fee of $29 for payments more than five days late, which is a little higher and less of a grace period than what many lenders offer. A good way to avoid late payment fees is to set up autopay, which takes the money out of your account on the same date every month.

If you set up autopay, though, make sure you have the money in the account when it’s due – PenFed also charges $30 for returned payments.

You also must become a PenFed member, which means opening a savings account with a minimum $5 deposit. The account can’t go below $5 for more than six months, or you lose your membership. PenFed has a $15 inactive account fee, so be sure to make deposits once in a while to keep the account from zeroing out. If you have a PenFed regular savings account, you can make withdrawals and check balances at ATMs, but there is a $1.50 fee for the former, and a $1 fee for the latter, so keep that in mind, too, if your savings balance is low and you don’t want to zero out.

Pros and Cons of PenFed Debt Consolidation

PenFed is a credit union with a long and successful history. As with many credit unions, it has low APRs and a less rigid qualification process than many online lenders. Unlike some other credit unions, it’s open to anyone who wants to become a member. And you must become a member with the lowest rates reserved for long-time members.

Pros of PenFed

• No origination fee
• Low APRs
• Co-borrowers accepted
• No restrictions on membership

Cons of PenFed

• Must become a PenFed member to get a loan
• Newer members don’t get the best rates
• Online banking is only option in most states
• No paper statement option

Is PenFed Debt Consolidation Right for Me?

The better your credit, the better a choice PenFed debt consolidation is, since you’re more likely to get a low APR. If you’re already a member, that’s even better, because that combined with good credit qualifies you for the lowest rate.

If you don’t have good credit but someone with better credit is willing to be a co-borrower, that can get you a good rate and is an option that many online lenders don’t allow.

Military members may like PenFed because it caters to the armed forces. If you’re deployed overseas, a debt consolidation loan from PenFed will take a lot of the hassle out of borrowing.

IF you’re interested in a PenFed loan, check your rates. It’s free and has no impact on your credit score. You can then decide if you think it’s right for you and your financial situation.

One thing to keep in mind is that PenFed’s loan services are all digital and online. If you’re not comfortable with using a smartphone app or website for communication and transactions, PenFed may not be for you.

PenFed Reputation and Consumer Reviews

PenFed has an A+ rating with the Better Business Bureau, which means it performs very well when interacting with customers. The credit union is not accredited by the BBB, which means that it didn’t take the extra step to apply and pay a fee for accreditation – it is not a negative mark against PenFed.

The Consumer Finance Protection Bureau has received 13 complaints about PenFed consumer loan out of 724 total complaints about the credit union since 2011.

Consumer Reports gives PenFed Credit Union a 92, awarding it 5 stars out of 5 for website usefulness and ease of online transactions. It gets a 4 out of 5 for customer service. Its lowest ranking is 2 out of 5 for convenience of locations.

The PenFed banking mobile app has a 4.2 rating on IOS and a 4.4 rating on Google Play.

Customers who gave good reviews on various sites are impressed at PenFed’s low rates and the fact they could get a loan for as much as $50,000. Positive reviews called the process “flawless,” and praised the fast pace of application and quick deposit of the loan money. Most of PenFed’s reviews exemplify a sound, reliable company.

Negative reviewers didn’t like having to become a member to get a loan, and also complained of being locked out of accounts without adequate customer service assistance. Some were confused as to why they were denied a loan despite a high credit score. (The credit union stresses credit score is only part of the qualification process, which is why it doesn’t cite a required score on its website).

Customers who are uncomfortable with digital and online interactions were frustrated with the technology and inability to do things by mail or in person.

One positive when it comes to the negative reviews on the BBB site is that PenFed, unlike many online lenders on the stie, responds to almost every complaint, and does it in a respectful way. Most and it looks like all those complaints are resolved.

Alternatives to PenFed Debt Consolidation

If you don’t think PenFed debt consolidation is a good fit, there are other debt consolidation alternatives, including ways to get a loan with bad credit.

Your local credit union may be a good option if the credit union experience appeals to you, but you want something closer to home than PenFed. Start with the National Credit Union Administration, which has a location finder, and other information on credit unions and what to look for.

For an online debt consolidation loan, some options are:

• Discover has APRs of 6.99%-24.99%, for loans of $2,500-$40,000, with 36-84 month terms. There is a minimum income requirement of $25,000. Discover takes a holistic approach to applicants, which includes credit history, finances, and income.
• Lending Club accepts credit scores as low as 600, but the lower your score, the more you will pay. There is a 3%-6% origination fee and APR is 9.57%-36%. Loan amounts range from $1,000-$40,000 for terms of either 36 or 60 months. Lending Club also requires a debt-to-income ratio of 40%. Lending Club, like PenFed, allows co-borrowers.
• Upgrade is a fintech company that matches borrowers with loan offers. It works with small banks and credit unions, and in doing so, keeps rates manageable for borrowers with good credit. Applicants will see multiple offers with a variety of terms and rates. Upgrade debt consolidation loans of $1,000-$50,000 have 24-84 month terms with 8.49%-35.99% APRs. Applicants with poor to bad credit can expect to get fewer offers and will likely have high APRs.

Debt Management as an Alternative to Debt Consolidation

If you can’t, or don’t want to, borrow money to pay off debt, a debt management plan may be a good option.

Nonprofit credit counseling agencies offer DPMs to help consumers budget and plan finances while eliminating debt. A debt management plan should lower the interest rates on your debt and reduce the monthly payment, providing relief from pesky debt collectors.

Plans take 3-5 years, and you make a fixed monthly payment to the nonprofit credit counseling agency that’s based on your budget. The agency works with your creditors to lower interest rates, then pays down your debt.