If you ask most people, secured and unsecured debt consolidations are typically the same. The truth is, there is a huge difference between the two. Making a decision on a debt consolidation loan can make a difference either negatively and positively on your finances. Before you make any decision on a debt consolidation method that will save both your time and money when you are clearing out all impending debts
Let’s look at the differences between the two loans
The basics secured debt consolidation?
Secured debt consolidation is mostly involved with personal loans given to you by banks or other loan lenders. You can use this loan to pay off all your debts, no matter the type, and clear it using your lender’s terms. You end up paying less and getting out of dent faster than you would have.
The main terms of a secured loan, is that you give the lenders a given amount of money or a major asset you own to serve as collateral. They can take charge of the assets or money when you do not make the payments and use them to repay your loan when you fail to make the payments. The collateral does not have to be the exact value of the loan; it can be less and more. The collateral can be any asset of value that you own. You can use your home to secure a personal debt consolidation loan. Collateral is essential to help the lender minimise the risks of dispersing the loan and not getting their money back
What is unsecured debt consolidation?
Basically, an unsecured debt consolidation works with the same purpose as the secured debt consolidation loan. You borrow money from a lender to complete other excessive and overdue debt payments.
With this loan, you are not required to put down any money or assets to secure a loan. You can get a loan sorely based on the proof of income and your credit score. The lender will approve your loan request when they are sure you can make the monthly payments based on your monthly income and commitments.
What are the key differences between secured debt consolidation and unsecured debt consolidation?
The obvious difference between the secured and unsecured consolidation loans is the need for collateral. This may seem like the main difference, but it goes beyond that. The interest rates on an unsecured debt consolidation loan are higher than those of a secured loan. The lender wants to make their payments as soon as they can while making a profit from their unsecured loans.
Most people are more likely to get an approval for a secured loan than an unsecured one. Lenders don’t just trust anyone when giving out unsecured loans. To qualify for an unsecured loan, you have to have a good credit and high income with a permanent job. If you are not a financially responsible person, you will not qualify for an unsecured loan, but you may qualify for a secured one.
Before you take out a debt consolidation loan, you should study all your available options. Ensure you chose the best consolidation loan with the lowest interest rate growth and convenient monthly payments.