Secured Loan for Debt Consolidation: A Safe Option?
These days, falling into debt isn't the 'game over' scenario it once was. Debt can have a huge impact on various aspects of our lives, but is nonetheless something that can be negotiated and reversed with due care and effort.
From bad credit mortgages to subprime secured loans to personal loans for poor credit applicants, the market for financial products is more diverse and dynamic than ever. But when it comes to putting the pieces back together, no financial product can bring greater relief than a consolidation loan.
Secured Loans for Debt Consolidation Vs Unsecured Loans
If you find yourself juggling a whole bunch of debts you're struggling to cope with, consolidation could be the answer. With a consolidation loan, all (or most) debts are paid off using a single loan, with a single monthly repayment and a single rate of interest accordingly. Along with making it easier to keep up with your outgoings, a consolidation loan could also save you a fortune.
Within the debt consolidation sphere, there are two types of loans to consider:
- Unsecured consolidation loans
- Secured loans for debt consolidation
For most people, the first of these choices is also the most obvious. Unsecured consolidation loans are available from most mainstream banks and lenders, and can be applied for like any other loan. Unfortunately, the fact that you're already in debt could make it difficult to qualify. Particularly if your credit score has taken a pounding, eligibility is likely to be an issue.
In the case of the latter, secured loans for debt consolidation work in a slightly different way. Rather than assessing eligibility on the grounds of credit score or financial history, it's all about assets. Specifically, the extent to which you can cover the value of the loan with collateral. Lenders establish their own criteria when it comes to acceptable assets, but most will lend on homes, commercial properties, land, automobiles etc. - sometimes even jewellery and fine art.
Of course, you could find yourself in a position where both options are accessible. In which case, should you apply for an unsecured consolidation loan, or consider a secured loan for debt consolidation?
The Benefits of Secured Loans for Debt Consolidation
If you're able to qualify for an unsecured debt consolidation loan, the primary benefit is the fact that your assets are safe. If you fail to repay the loan as agreed, you're unlikely to lose your home, or whatever you used to secure the loan.
Aside from this, however, secured consolidation loans have several key advantages to consider.
The first of which is the simplicity of the application process. Assuming you can provide sufficient collateral to cover the costs of the loan, you're almost guaranteed to be accepted. Not only this, but your application can be processed and the loan granted within a few days.
In addition, secured loans are naturally considered safer loans by the vast majority of lenders. By securing the loan against viable assets, there's little to no chance of the lender losing out - irrespective of the outcome. As a result, secured loans are almost always offered at lower rates of interest than unsecured loans.
You may also find that a secured loan is far more flexible than a comparable unsecured loan. In terms of repayment periods and the general terms of the loan, secured loans can provide more room to manoeuvre than their unsecured cousins.
The Takeaway…
If you find yourself in a position where you're considering a debt consolidation, the first thing to do is speak to an independent broker or financial adviser. Explain your situation and explore the available options, which may or may not include a variety of secured and unsecured loans.
In any case, it's always worth taking action on debt at the earliest possible juncture. The longer you wait, the more expensive it becomes to clear your debts and the heavier the toll taken on your credit report.