Discover personal loan review: Direct payments for debt consolidation

Family baking cookies together in the kitchen Image: Family baking cookies together in the kitchen

In a Nutshell

Discover personal loans offer several customer-friendly policies, including no origination fees and direct payments for debt consolidation. Discover allows you to check your estimated loan rate without affecting your credit scores and keeps fees to a minimum. But you'll likely need good credit to qualify.

Editorial Note: Credit Karma receives compensation from third-party advertisers, but that doesn’t affect our editors’ opinions. Our marketing partners don’t review, approve or endorse our editorial content. It’s accurate to the best of our knowledge when posted. Availability of products, features and discounts may vary by state or territory. Read our Editorial Guidelines to learn more about our team.
Advertiser Disclosure

We think it's important for you to understand how we make money. It's pretty simple, actually. The offers for financial products you see on our platform come from companies who pay us. The money we make helps us give you access to free credit scores and reports and helps us create our other great tools and educational materials.

Compensation may factor into how and where products appear on our platform (and in what order). But since we generally make money when you find an offer you like and get, we try to show you offers we think are a good match for you. That's why we provide features like your Approval Odds and savings estimates.

Of course, the offers on our platform don't represent all financial products out there, but our goal is to show you as many great options as we can.

Pros Cons
Checking your estimated rate won’t affect your credit scores Other lenders may offer lower rates
No origination fee Good credit may be needed to qualify
Debt consolidation option requires at least 70% of the loan funds go directly to creditors Maximum loan amount is $35,000

What you need to know about a Discover personal loan

Discover is a large financial services company known for its credit card offerings. But it also issues student loans and personal loans. Personal loan uses can include debt consolidation, home improvements, major purchases and emergency expenses.

Loan amounts offered range from $2,500 to $35,000, which is less than what you’ll find at some competitors. Repayment terms range from 36 months to 84 months, providing many options for different budgets.

Discover is also known for having U.S.–based customer service.

Check your estimated loan rate without affecting your credit scores

Discover lets you see what loan rate you may qualify for before you submit your final application — without hurting your credit scores. This feature, also known as a soft credit inquiry, allows you to shop around for rates before deciding which lender you’d like to officially apply with.

No origination or application fees

Compared with other lenders that may charge origination or administrative fees for personal loans, Discover’s fee schedule is more customer-friendly. Some of the fees you may encounter include a $39 late fee for not making your monthly payment on time or an insufficient funds fee if you don’t have enough money in your bank account to cover a payment.

You can also pay off your loan early without facing a prepayment penalty.

Consolidating debt? Discover can pay your lenders directly

If you’re using a personal loan to consolidate debt, Discover will pay your lenders directly. In fact, Discover requires at least 70% of the loan proceeds to be paid directly to lenders if you’ve selected debt consolidation as the purpose for the loan. Otherwise, your final loan approval and annual percentage rate, or APR, may be affected.

Although this feature may seem restrictive to some, it helps you ensure the loan proceeds are used to pay off the debt as planned rather than face temptation to use it for another purpose.

You may find better rates elsewhere

Discover loan rates are competitive, but you may be able to find better interest rates elsewhere, depending on your creditworthiness. Make sure to shop around to find the best loan for your situation.

You may need good credit to qualify

Discover’s website does not list requirements for minimum credit scores, debt-to-income ratio or other minimum credit requirements needed to be approved for a loan. But according to its 2020 annual report filed with the SEC, the vast majority of personal loan recipients have credit scores of 660 or above.

You will also need to have a minimum household income of $25,000 to qualify.

If your credit isn’t strong and you’ve got some work to do on it, it probably makes sense to explore other personal loan lenders.

Who is a Discover personal loan good for?

Discover personal loans are a good option for people who want a debt consolidation loan for their credit card debt or other debts. 

Since Discover doesn’t charge origination or administrative fees, you can get the full proceeds from your loan. The company even has certain requirements for direct payments to your lenders to help make sure the money you borrow for debt consolidation actually gets used to pay down your debt.

If you need the money quickly, funds may be sent as soon as the next business day after approval, but it could take as long as seven days in some cases.

If you do end up finding a better deal on a personal loan, you could take advantage of Discover’s 30-day, money-back guarantee in which you can return the entire loan amount and pay no interest. Just remember that Discover won’t retrieve that money. There are a lot of hoops to jump through to take advantage of this option, so you should still consider whether Discover is the right lender for you before applying.

How to apply with Discover

Applying for a Discover personal loan is relatively straightforward. You can begin the application process either online or over the phone. You’ll probably want to start by checking the estimated rate you qualify for.

Keep in mind that to qualify, you’ll need to be a U.S. citizen or permanent resident and be at least 18 years old. Co-signers are not permitted.

To start the application process, you’ll need to enter in some information about yourself:

  • Amount you want to borrow
  • Planned use for the money
  • Desired loan term in months
  • Name, address and phone number
  • Email address
  • Employment information, including employment status and total annual income
  • Monthly mortgage or rent payment
  • Social Security number
  • Date of birth
  • Whether you’re a U.S. citizen or permanent resident

After you receive your rate quote, you can either fill out the rest of the application and apply for the loan or shop elsewhere. To complete your application, you’ll need to provide some additional information:

  • Your bank account and routing number if you want to deposit funds into your bank account
  • Information for your creditors if you want Discover to pay off your debts directly

In certain cases, Discover may call you to verify your application information and final details after you submit your application.

If a Discover personal loan isn’t right for you, consider these alternatives

  • LightStream: LightStream, the online consumer lending division of Truist bank, may be right for you if you need a larger loan amount.
  • Avant: If you can’t qualify for a Discover personal loan based on your credit, Avant may be a better option. 

About the author: Lance Cothern is a freelance writer specializing in personal finance. His work has appeared on Business Insider, USA and his website, Mone… Read more.