Unsecured Debt Consolidation Loans

For some time, it was true that getting an unsecured debt consolidation loan was almost unheard of. The reason is that it used to be a negative thing to have so much debt that you needed other alternatives to get it paid off. The banks saw this as an increased risk. If banks were to loan money to a higher risk, they wanted collateral. 

In today’s struggling economy, the stigma that was once attached to a debt consolidation loan is not the same. Lenders are more willing to loan to people who are trying to pay off current debt at a lower interest rate, and that type of loan is no longer perceived as high risk. Therefore lenders are much more willing to offer unsecured debt consolidation loans.

What exactly is the difference between a secured loan and an unsecured loan? Collateral. If you take a secured loan, you offer something of value as collateral. When you purchase a car, it is a secured loan. The loan is secured by the car you purchased. If you don’t make payments, the lender repossesses your car. In many other cases, a secured loan is secured by your home. In these cases, if you don’t make payments, your home is repossessed. Most of the time this is not the wisest option for borrowers!

With an unsecured loan, you offer no collateral. The bank takes your word when you sign the contract to borrow money, your word is your collateral. If you can’t pay your debt, it shows up in your credit score. You lose only your credibility with other lenders. It is still not a great place to be, but it beats losing your house!

Since the unsecured lender is taking a higher risk in lending to you without collateral, the interest rate on these loans will be slightly higher than a secured loan. After all, lenders must be compensated for their risk. With an unsecured loan your credit score is the most important factor! If you have a lower credit score, you run the risk of not being approved at all. If you are approved, it will most likely be for a lower amount than you might want, and it will almost assuredly be at a higher interest rate.

If you have an above average interest rate, you will be able to obtain an unsecured debt consolidation loan for the amount you want at a very reasonable interest rate.

If you are already struggling with late payments and missed payments, a debt consolidation loan may not be the best way for you to go in getting your debts under control. You may want to look at debt settlement, other methods of consolidation, or debt counseling. These three options are usually more affordable, though sometimes more time consuming, than a debt consolidation loan if you are already battling a low credit score.

So what are the benefits of a debt consolidation loan? First, if you are already struggling with your bills, you are getting calls from your creditors. Sometimes they call at home, and that is bothering enough. But other times they call at work or your cell phone when it is really inconvenient. This can be embarrassing and bothersome! A debt consolidation loan can stop those phone calls because you pay off those creditors with the money from the loan.

Another benefit is that a debt consolidation loan can fend off a potential bankruptcy. While it may be really hard to get an unsecured debt consolidation loan if you are already facing bankruptcy, a cosigner may be able to help you make it happen. If you are headed for bankruptcy, consider all options because you don’t want that haunting you for ten years!

A third benefit to a debt consolidation loan is that it can alleviate your burden of debt. If you are carrying multiple cards, making multiple payments at multiple interest rates, you know how tiring it is to keep up. An unsecured debt consolidation loan brings all your payments to one dollar amount every month. Write one check. Pay one interest rate. Much easier!

An unsecured debt consolidation loan is a great option if you are having a hard time making your monthly debt payments. If you are considering this option, clean up your credit score and keep up with bills as they are for a few months to show you are worth the risk. While coming out from under debt is like fighting an uphill battle, if you have the right tools, it is a battle you can win. You can get a great benefit from getting an unsecured debt consolidation loan!

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