Secured or Non Secured

When it comes to actually getting a debt consolidation loan there are essentially two main options available to you. A secured or a non-secured loan. A secured loan is where you offer the loan provider collateral against the outstanding amount. In most people’s cases a house would be the most likely example of this. The huge advantage here is that by securing the loan you will also be able to secure a lower interest rate. The rates available for this type of loan are extremely competitive and this will usually work out as being an extremely cost effective form of financing.

The main drawback with a secured loan is that you’re putting your home at risk. If you fall into a situation where you are unable to make the repayments then you risk foreclosure. In previous scenarios where you spent money you didn’t have you were putting your credit rating at risk but what you are risking this time is far more serious. If you have any doubts at all about your ability to repay then this is probably not the loan for you. The truth of the matter is that you probably shouldn’t be considering any type of consolidation until you have put yourself in a situation where you will be able to repay but if you do need a solution in the short-term and you’re still leaving some risks in this area then a secured loan is absolutely not for you.

The second type of loan is non-secured. This basically means that you would not be providing collateral against the loan. The main drawback here is that because the risk to the loan provider is higher then as a result, the cost of servicing the loan in terms of the interest rate will also have to be higher as well. Loan providers are in business to make money and any time there is more risk involved for them, the cost for you is going to be higher as well. The obvious advantage here is that you’re not putting yourself in a situation where you’re risking your home.

Ideally, you should be confident enough of your ability to repay that you can go for the more cost-effective secured loan. That said, if you have any doubts at all been looking at the other options is probably what you need to do.