Unsecured consolidation loans are typically issued in the form of personal loans, and the qualifications are more rigid than other types of loans. Consolidation loans, in general, are used to combine all debts into a single payment and lower interest rates on existing credit card bills. These loans make it easier to budget, reduce stress caused by multiple collectors and lenders, and can even improve credit when the loan is paid.
In most cases, consolidation loans are available to homeowners willing to use their home equity as collateral. Non-homeowners, however, also have the option of receiving an unsecured debt consolidation loan if the other requirements are met. Good to excellent credit is a must if there is no collateral available. Otherwise, the loan would be too risky for the lender.
What Are the Benefits of an Unsecured Consolidation Loan?
These loans offer several benefits, the most important of which is that there is no risk of having personal property repossessed. Peace of mind is a close second, but there are also several more benefits of receiving such a loan.
- Debt consolidation – All bills are paid at once including medical, credit cards and payday loans. A single loan is left to repay, meaning a single, easy monthly payment. The need to manage numerous creditors will be removed.
- No more collection calls – Because an unsecured debt consolidation loan takes care of all the bills, harassing collection calls will cease. Payments are made to a single entity.
- Lower interest rate – Unsecured loans are available at lower interest rates than those of credit cards. Monthly loan payments will be much lower than the monthly payments to the credit card companies, as the interest rates are decreased.
- Boosts credit rating – When the debt consolidation loan is completely paid, this will positively effect the credit rating. Timely payments are reported to credit reporting agencies.
What Are the Disadvantages of an Unsecured Consolidation Loan?
While an unsecured loan may sound like a fantastic idea, there are some disadvantages in comparison to a standard loan.
- Longer repayment term – Although the monthly payment may be lower, an unsecured loan may require repayment over a longer period, meaning more interest could be due over time.
- Difficult to qualify – Not everyone will qualify for an unsecured consolidation loan. Without an excellent credit rating, the chances for securing a loan are slim.
- Lower maximum loan – The maximum amount of money issued through an unsecured debt consolidation loan is typically around $5,000 to $15,000. For many people, this isn't enough to pay off all the debt owed.
Do You Qualify for an Unsecured Consolidation Loan?
Before applying for an unsecured loan, consumers should check to make sure they meet all of the qualification requirements.
- Excellent credit rating – Obtain a credit report to ensure the credit score is good to excellent. Sometimes, good won't be good enough. Eliminate any financial blips that could interfere with the securing of a personal loan.
- An Acceptable amount of debt – Calculate all of the debt owed to make sure it's not too high or too low. Generally debt within the $5,000 to $15,000 range is acceptable, but higher or lower than this may not qualify.
Speak to a debt counselor for further information on unsecured debt consolidation loans. Only a professional can determine if an individual will qualify. The counselor will also be able to outline the terms and conditions, and help take care of any problems that may prevent issuance of an unsecured consolidation loan.
Cindy Ausbrooks - Cindy Ausbrooks is a freelance writer living in the beautiful Hot Springs, AR. She enjoys herbalism, natural medicine, animals, crafts, ...
