Debt Consolidation - Secured or Unsecured Loans?
Debt consolidation is the term for replacing one or more expensive, high-interest loans with a new one at a reasonable interest rate. By reducing the rate of interest as well as the number of loans, the consumer has the opportunity to repay debt faster than before.
The advertisements on tv and radio seem to be ubiquitous, suggesting that if you owe too much money, you just need debt consolidation to end your financial troubles. Getting out of heavy debt is more complicated than merely obtaining a loan, as you actually have to repay your debt to fix the problem. The right consolidation loan can make it easier to repay bills, as you will have to make only one payment each month, but the wrong loan can cost you more money.
There are two ways to borrow money to consolidate your debt; each has its good and bad points. An unsecured loan can be used to pay back financial obligations and a secured loan, which makes use of collateral, can also be used.
A secured loan is probably the most commonly employed financial tool to combine bills, using collateral that offers somewhat of a guarantee to the lender that you will pay them. The most frequently used types of collateral are homes and cars or trucks; it's simple to determine a value for them and they can sell easily should you not repay your loan. In exchange for offering collateral, you do get some advantages - you can likely borrow more cash than you could with an unsecured loan, and the interest rate that you pay will likely be more affordable.
An unsecured loan needs no collateral; the financial institution simply lends you the money in exchange for a promise to repay. An unsecured loan can be harder to get than a secured one, especially if your credit is poor. A benefit for the debtor would be that there is no inherent risk of losing assets, such as a car or a home, should she default on the loan. Unsecured financing comes with a price, as the interest rates have a tendency to be substantially higher than for collateral-backed loans.
For the vast majority of borrowers, collateral-backed lending provides the best financial leverage towards paying off a mountain of financial obligations. The offer of collateral to the financial institution goes a long way towards obtaining an affordable interest rate. Consumers can get the best deal by looking for secured financing. As the interest rates are more expensive, trying to consolidate such bills with more unsecured loans might leave the cconsumer just going nowhere. If you are not sure as to what might be best for you, talk to a bank or a credit union.
About the Author: ©Copyright 2007 by Retro Marketing. Charles Essmeier is the owner of Retro Marketing , a firm devoted to affiliate marketing, and Debt-Stopper.com, a site about debt consolidation and credit reports, personal bankruptcy and other financial matters.
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