If you are looking to apply for one of the available debt consolidation loans, but you are unsure as to which type to choose, then here is everything you need to know about the loans, the lenders as well as the advantages and disadvantages of each.
What type of loan?
Before committing to taking one of the available debt consolidation loans you should first know that there are secured consolidation loans and unsecured consolidation loans. With an unsecured loan you don’t need to guarantee the loan with anything. While the lender trusts you to keep your promise to repay, unsecured loans will have much higher interest rates, especially if you have a low credit score. Lenders also set stricter requirements since the loans are much riskier for them. You are also going to be quite limited in terms of the maximum amount of money you can borrow and the repayment window.
With secured debt consolidation loans you guarantee with a physical asset such as your car or your home. This makes the loan less risky for lenders and so the interest rates drop quite a bit. Since the lenders can just take the assets set as collateral if you default on the loan, they also have less strict requirements. Having a poor credit score will make less of a difference compared to unsecured loans, and you could also get a loan that offers more money. In some cases, you can be looking at around 50,000 dollars or more depending on the lenders you apply for (http://www.toptenreviews.com/money/debt/best-debt-consolidation-companies/).
Which lender to go for?
Choosing a lender is also an important step towards paying off your other debts. With specialized lenders, you don’t have to have high credit scores and other conditions are also less strict. However, the amount of money you can borrow is limited and you also can expect higher interest rates. Banks have stricter rules and eligibility standards but they can offer anything from 30,000 dollars to 60,000 dollars on debt consolidation loans you can also repay the debt in a maximum of 60 months.
There are also credit unions you can borrow from, and their interest rates are quite good, but they have really strict standards and you require a very high credit score to qualify for their better rates. However, with a FICO of 780 and higher, you can expect the best rates as well as up to 60 months repayment window. Payday lenders may also be an option but that only if you are desperate and know you will have a higher income soon. You can also look at peer to peer services which facilitate loans between different persons.
Other things to keep in mind
If you have many high credit card balances and are paying them off, don’t make the mistake of cancelling them, as that will affect your credit score badly. Also make sure you compare rates, as well as the repayment window, so you can compare apples to apples when deciding on which of the debt consolidation loans you want to apply for.