rbazon/gettyimages;Illustrated by Hunter Newton/Bankrate
Key takeout
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A debt consolidation loan combines two or more individual obligations into a single loan to make one monthly payment.
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Some debt consolidation loans are secured, while others are protected.
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Unsecured debt consolidation loans are less risky for borrowers as collateral is required for secured loans.
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If you have sub-credits, a secured loan may still be better.
Managing multiple debt accounts at once can be challenging, but you can find some relief with debt consolidation loans. These loans are readily available through traditional banks, credit unions and online lenders. There are also two forms: Security and unsecured loans.
Unprotected unsecured debt consolidation loans can help you shave months or years after the repayment period. You can also save on your interest bundle by getting debt consolidation loans at more competitive interest rates.
Secure and unsecured debt: What is the difference?
Unsecured obligations are not secured by any type of collateral. An example is an unsecured personal loan that will result in a lump sum payment to the borrower in exchange for a promise to repay the loan, including applicable interest and fees.
Secured obligations are protected by collateral, including home, car titles, bank account money, or other assets. Because the debt is secured, the lender has the right to seize the collateral if the borrower fails to repay it.
What is a debt settlement loan?
A debt consolidation loan is a personal loan or other credit product that is used to deploy several debt balances into one new loan product. Whichever Debt settlement options If you choose, your loan may be protected with collateral or unsecured.
Can be used Personal Loan Calculator and Credit Card Payoff Calculator Calculate potential interest savings with debt consolidation loans. Ideally, the interest rate on debt consolidation loans should be lower than what is currently needed to maximize cost savings.
Protected debt integration loans
Strong Points
- Easier loan approval: If you are eligible for a loan that requires collateral, it may be easier to get approved.
- Improved loan terms: Loans with collateral will have lower interest rates, higher loan restrictions, or both.
Cons
- Collateral is required: You must have collateral or assets to qualify.
- put collateral at risk: If the loan fails to repay, the lender can seize the assets.
Unsecured debt integrated loan
Strong Points
- No collateral required: You are eligible based on your credit score and income without requiring collateral.
- No assets are at risk: If the lender fails to repay the loan, there is no assets to seize.
Cons
- More stricter approval requirements: Without collateral, you may need a higher credit score, more income, or both to qualify.
- Possibility of higher loan costs: Unsecured loans are risky for lenders, which can make borrowers more expensive.
Two types of secured debt settlement loans
Despite their risks, depending on your financial situation, debt settlement on secured loans may be worth it. You can use any of these protected loan products for debt settlement.
Three types of unsecured debt integration loans
For unsecured loans, the lender will rely heavily on your credit profile, income and work history to make decisions.
How to get a debt settlement loan
Follow these steps to secure your own debt consolidation loan.
- We will assess your financial situation: Ideally, you’ll need a credit score in the mid-600s and a debt income (DTI) ratio not exceeding 36% to get the best chance of qualifying for a loan on competitive terms.
- Compare loan options: You can apply for debt consolidation loans through traditional banks, credit unions, or online lenders. Compare lenders based on interest rates, sender fees, repayment terms and other factors.
- Check the eligibility requirements: Please note that each lender has its own eligibility requirements. Please research or contact your customer service representative before applying and choose a debt consolidation lender who will serve customers like you.
- Apply when ready: Once you find a lender with the loan terms you can live with, take steps to apply online. Some lenders can also check rates and measure approval odds without affecting their credit score.
Which debt consolidated loan is right for you?
The right option is a loan that will help you get out of debt with monthly payments and all-in-cost you can afford. Debt consolidation loans are a viable way to get the funds you need.
If you are a homeowner, you can also opt for secured debt consolidation loans like Home Equity Loans, but you can also opt for other secure loan options. Even if you are not a homeowner, you may still get an unsecured personal loan with non-perfect credits. You can also consolidate your debts with a peer-to-peer loan or balance transfer credit card.
Conclusion
Debt consolidation loans make it easier to manage multiple debt accounts. You can repay your balance faster and save on interest. Before applying to get a financially appropriate loan, weigh the options between secured and unsecured loans.