The Kinds Of Debt Consolidation Loans

Debt problems? Then maybe getting a debt consolidation loan is the answer to your problem

. How? What are the choices you have? This article will tell you how you can get free from your debts by consolidating it. It will also discuss the two kinds of debt consolidation and their differences.

Secured Debt Consolidation Loans

A secured debt consolidation loan is one that requires the submission of collateral The collateral can be a car, home or other valuable asset that belongs to the borrower. By submitting collateral, a lender is given a guarantee that in case of default, there is an available source of funding which can be used for debt repayment.

Most people prefer to submit their home properties because of its bigger value. If you need to pay large amounts of debt with various creditors, you may need to use your home as collateral to get a bigger loan. Nevertheless, there is always the risk that your lender can repossess your property should you fail to keep up with your loan repayment.

A secured debt consolidation loans gives the borrower some sense of freedom. By paying off all your existing debts at once, you can be free from the pressure of dealing with creditors and debt collectors. There is also no need to juggle between different due dates since you'll only have to submit one monthly payment to your debt consolidation company. Combining multiple debts into one account means paying only one interest rate significantly reducing your total monthly cost.

Unsecured Debt Consolidation Loans

Some people may not have a home or a property to use as collateral. Remember that you can't apply for a secured loan if you are just renting your home or you are undergoing a mortgage repayment. Others will have second thoughts of using their property as a collateral. If the same situations apply to you, an unsecured debt consolidation can be a good option. Instead of resorting to bankruptcy, you can just consolidate your debts as another option?

Unsecured loans have a much higher interest rates compared to a secured one simply because there is no collateral. This is why it's very important to do extensive research and compare lenders before making a choice. Many lending companies offer unsecured consolidation loans through the internet for easier and more convenient application. Still, it is advisable to spend time analyzing your options before signing up for an unsecured debt consolidation loan.

To be approved for non-secured loan, the borrower has to submit a proof of a stable income. In the absence of a collateral, this will serve as some assurance that the applicant is capable of paying. However, because of the higher risks involved, most lending companies or debt consolidation companies will only offer a limited amount of loan. The repayment period will also be much shorter than the repayment period for secured loans.

Copyright (c) 2009 Suzy Vanstrusen

by: Suzy Vanstrusen

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