Benefits of an unsecured debt consolidation loan
Debt consolidation is the ideal solution for those with a lot of balls in the air like credit cards, store cards, other loans and are struggling to juggle them efficiently. If all these debts are being handled separately and to different creditors, they are a huge burden for you as you will be paying more interest and several lenders are difficult to keep happy at the same time.
This is where debt consolidation comes to your rescue. It shows that although getting into debt seems to be easier than getting out of it, there are solutions to make the exit easier and hassle free. Debt consolidation, once in place, can help you come become debt free in as less as three to five years time.
The eligibility of the person to apply for debt consolidation is dependent on the credit rating (past spending, saving pattern) of the person and it is this rating which will decide the interest rate charged. Rate of interest charged is the most important aspect of debt consolidation loans. If the person has a good credit rating then he can apply for lower interest rate on the loan, while a poor credit rating means a higher rate of interest for the loan as he is seen as a high risk factor.
Debt consolidation can be broken down into 2 types namely secured and unsecured loans. Secured loans are usually given against some collateral like a house or real estate or other valuable property. Unsecured loans tailor made for non-house owners or tenants. Unsecured loans are a more expensive service when compared to secured loans. The amount you receive under these loans is considerably less and the interest rate is much more. This is a high risk loan for the lender as there is no security involved and recovery will be all the more difficult.
Unsecured loans also have their advantages the primary one being that your assets remain safe with you as they are not pledged. So the creditors can’t get to them to recover their debts. So these loans are also accessible for those who are not home owners and do not have any asset to offer up as collateral. Unsecured loans offer a variety of benefits like:
- Lower interest rates – Although not as low as unsecured debt loans, the unsecured debt consolidation loans also get low interest rates depending on the person’s credit rating and financial disposition at that time
- Monthly payment – Since all your debts get consolidated into one easily payable monthly payment, most of the stress and heat is taken off you. You only have one creditor now instead of the many you were trying to keep away and they can no longer take action against you if you are regular with your payments.
- Fees - If you have a lot of penalties and late fees on your credit or store cards, you can now bundle them into one easy payment and the late fees and penalties get waived off.
Bankers also find this seemingly high risk venture a good investment as it helps build a client base and long and fruitful financial relationship.