Personal Loans for Debt Consolidation: Secured and Unsecured OnesBudgeting, Debt Management | February 23, 2010 at 8:37 am
Debt consolidation is an obvious and quite helpful option for people finding it quite difficult to manage their debts. These loans have lower interest rate and longer repayment tenure, which makes it better than your current loans. Broadly, there are two types of debt consolidation loans, a secured one and an unsecured one. However, there are many factors one need to consider before going for debt consolidation.
Ones decision of availing a secured on unsecured loan depends on the amount of loan he or she needs. If it’s a small amount preferably between $350 and $7,000, it’s advisable to procure an unsecured loan. However, people with a bad credit history and requirement of funds above $5,000 must go for a secured loan because availing an unsecured might be difficult.
Rate of Interest:
If you are an individual seeking personal loan with a very low rate of interest, it has to be secured. This is because personal loans for debt consolidation needs a security. However, if you are not ready to give away anything as security, you will have to bear a high rate of interest, which is generally not preferable by most of the population. The rule that “rate of interest charged on a secured loan is always lower than that on an unsecured loan” is universal and will never change. Hence, decide what you want after considering this rule.
Generally, personal loans for debt consolidation are for longer period than the ones to be consolidated. Secured personal loan, usually, has to be repaid within 10 years, whereas an unsecured personal loan within 5 years. Hence, it’s important to gauge your repayment ability before selecting the type of loan.
The type of loan you may receive depends, to much extent, on your credit score. It becomes quite difficult to avail an unsecured personal loan if your credit score is ruined. However, you may get it easily if you credit is in proper shape.
Hence, it can be said the type of personal loans for debt consolidation depends on various factors like loan amount, interest rate, credit history, and tenure of the loan.