Debt Consolidation Loans

With the amount of consumer debt reaching record levels recently many individuals have looked at consolidating all their debt with a debt consolidation loan. But debt consolidation loans are not as straightforward as it seems and most individuals are not informed enough on the topic. Hopefully I can explain what a debt consolidation loan is, why people use them and some things you should be careful of.

Debt consolidation is a process that will aggregate all your present loans from different sources to a single loan comparatively at a lower rate of interest and mostly against a collateral security. You can get the debt consolidation done by a private company, a bank, a financial institution or a government agency. The loan will ease out your repayments as you have rather a single installment to be paid and managed every month. Debit consolidations can be done either as a secured or as an unsecured loan.

It is true that debts accumulated over a period of time can lead to serious financial crisis. They can affect the credit history of the borrower adversely. Hence, it is very important to know how to deal with such a situation. One can opt for debt consolidation advice and find out how to manage debts. With this type of advice, one can easily come to a conclusion as to which type of loans will be suitable.

Consolidation loans that do not have accompanying low interest rates are not going to accomplish debt relief. There are many companies that offer very low interest rates, and these are the lenders to choose for your consolidation loans. In a matter of minutes, online debt consolidation sources provide quotes for interested customers. Comparing more than one lender affords a reliable means of comparison for interest rates, terms, and repayment schedule. Another measure of added consumer safety is referring to the Better Business Bureau concerning the lenders you are considering for any customer complaints and concerns and have been reported.

There are two basic type of debt consolidation loans; secure and unsecured. With an unsecured debt consolidation loan, it is only provided if collateral is put up for the amount that is borrowed. These can be one of many assets, including a home, car or bank account. With this unsecured loan, most any amount can be borrowed as long as collateral is given. If the terms of a secured loan are not met or payments are not made, the lender has the right to take possession of the asset. This is the reason why this type of loan has a lower interest rate and the amount of the loan can be higher.

Lenders also consider loans secured by personal property. The approval process is similar to qualifying for a home equity credit, but qualifying for a secured personal property loan is slightly more difficult. For example, vehicles depreciate rapidly. Lenders may limit terms to four to seven years and require installment interest rates of 15% to 20%. The reduction in total payments is less when using vehicles as collateral to reduce credit card obligations.

There are also a number of other options available when considering debt consolidation loans. These include the previously mentioned home equity loan and personal loan, yet borrowers are also able to consolidate by refinancing their car loan or cash out refinancing. What these entail is either borrowing against your existing car loan (but remaining within the cars value) and refinancing for more than their actual property is valued at, then using the extra funds to pay off all debt. While the second option will receive love interest rates, this is not a first option choice as if the repayments will span across a very long period of time.

It’s not hard to see how powerful a debt consolidation loan can be. This can work for you no matter how small or how large your debts may be. The consolidation of debt can be a key to freeing up extra money, especially in the times we are living in now where money may not be as available to most people as it used to be. For anyone who has more than two outstanding creditors, and especially for those who are having a hard time making their existing payments, a loan to consolidate your debt can be the best way to lower your monthly payments and free up some much needed extra cash.

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