Debt Consolidation Loans - The Different Types
A debt consolidation loan will usually cover all your outstanding debt. All your loans, credit card balances etc are brought together under a single debt consolidation loan. This will greatly simply the process of repayment. Instead of making a number of individual payments everyone you will have just one single payment to make. But a debt consolidation loan is not just for convenience. The other main benefit should be a lower interest rate than you are currently paying on your debt.
There are two main types of debt consolidation loan - a Secured loan and Unsecured loan.
A secured loan is only given to someone who has some form of collateral to cover the amount of the loan. This can be any kind of asset but often a lender would be wanting property as security, such as your home. This kind of loan would normally be at a lower interest rate than an unsecured loan. But of course if repayments are not kept up the lender can take the asset you provided as security.
An unsecured loan has no collateral or asset attached to it. The interest for this kind of loan is usually higher than a secured loan. And you might not get the full amount of loan that you are hoping for. The lender will look at all your circumstances, income, expenditure, financial commitments etc to determine what they consider a reasonable amount to lend you. This will be set to a limit that the lender feels you will be able to repay. This is the safest kind of loan as you have no asset at risk. Even with the higher interest rate than a secured loan it should still be possible to get a loan at lower interest than you are already paying, especially if that debt is on a credit or store card. Credit cards have high interest rates when compared to personal loans.