Taking out a debt relief loan to consolidate high interest debt is a good way to reduce your debts and take control of your finances. If you’re one of the millions of people who are carrying around a load of debt and are finding it hard to pay off your monthly bills a consolidation loan can help make the monthly payments more affordable.
There are two unique types of debt consolidation loans: secured and unsecured. If you’re looking to get a debt relief loan of any kind, make sure that you understand the two loan options. Without fully understanding what you’re getting into, you might end up losing out on an opportunity to make sure you’ve got a stellar financial future.
Secured Debt Consolidation Loan
Getting a secured debt consolidation loan is a popular option for many people but it requires something most people don’t have. You have to own property of some kind so that you can pledge it to the lender. A lender can give upwards of 80% of the equity of a home or something that is physical.
The reason these are popular is because they offer low-interest rates, and low repayment plans. Collateral is needed, which is something that many might not have, but it’s still an important option for those that don’t want to continue to pay the high interest rates associated with credit cards.
Before you select a secured consolidation loan, it’s important to look into how long the loan repayment option is, and ensuring that the payments can be made within your lifetime, is crucial to getting a positive decision.
If you own a home, you’ll be able to get a home equity loan or home equity line of credit to aid you, but once again, be careful with this type of lending, because you could lose your collateral if you don’t pay back the loan in time.
Unsecured Debt Consolidation Loan
An unsecured debt consolidation loan can be a good option for those that don’t own anything, and it’s interesting to note. If you’re in credit card debt, and don’t own a home or property, it’s important to look into this loan option.
This option allows a person to receive funds based on credit score. Obviously, the higher your credit score the lower the interest rate on the loan, and vice versa. The lenders in this option carry a large amount of risk, so this option comes in with a higher interest rate and a limited amount.
Proof of income, supporting documentation, and much more paperwork needs to be filed before a person can get this option. The approval will be based solely on credit history and the discretion of the lenders. In some instances, a co-signer might be needed to get the approval needed to gain a few dollars.
If you have bad credit or unstable employment history there are bad credit lenders who will give unsecured loans to you. Keep in mind, however, the chances of getting unsecured debt relief loans are higher for those with good debt like student loans and not ones with bad debt like credit cards.
The above two major options are the types of debt relief loan options that are available to just about anyone. Make sure that you pay attention to the options available so that you’re making an educated decision on paying off your debts.