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What Is An Unsecured Debt Consolidation Loan?

You can combine all of your debts into 1 manageable repayment, saving you money & stress. But was is an unsecured debt consolidation loan?

Debt consolidation loans are a great way to combine all your existing debts into one single loan. This way, you only have one weekly/monthly/fortnightly payment to make. As a result, you have a chance to get on top of your debts and get them paid off more easily. Debt consolidation loans come in two different forms. You can choose from a secured debt consolidation loan or an unsecured debt consolidation loan. We are going to take a look at the latter and explore what is an unsecured debt consolidation loan.

What Is A Debt Consolidation Loan?

Debt consolidation is the process of reducing the stress and money pressure that comes with multiple debts. It brings all of your existing debts into one, manageable debt with one fixed interest rate. This is usually done by taking out a new personal loan and using that money to repay all your old debts. It is a great way to get a clearer view of your financial situation. From here, you can make a plan moving forward with just one repayment to worry about.

Many people get caught in the trap of multiple loans and struggle to pay them back. Having different interest rates, different repayment dates and different repayment amounts can be stressful. It can be hard to free up the cash at the right time of the month to make each of these repayments on time. Instead, people find themselves going further into debt and building interest as a result.

A debt consolidation loan is the perfect way to get yourself back on track. They rid of any complications that come with multiple loans and put you in a clearer headspace to manage your finances. There are plenty of advantages that come with consolidating your debt: you can get a better interest rate, manage repayments, and forget a path to becoming debt-free.

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What Is An Unsecured Debt Consolidation Loan?

As mentioned above, debt consolidation loans come in two forms: secured and unsecured. One of the conditions of a secured debt consolidation loan is that you have an asset (such as a car or property) to offer up as security against your loan. This means if you are unable to make repayments and default on your loan, your asset can be seized by the lender. Of course, this adds a lot of risk for you, but it results in a lower interest rate. This means you end up paying less over time than you would otherwise. As long as you are confident you can make the repayments, the risk is very minimal.

So what is an unsecured debt consolidation loan? As you would expect, with an unsecured loan there is no need to offer up an asset against the amount you are borrowing. With this type of loan, the risk is taken on by the lender, which means you often face a higher interest rate as a result. You end up paying more money through interest, but if you default on your loan, no asset will be seized.

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Why Take Out An Unsecured Debt Consolidation Loan?

One of the main advantages that come with taking out an unsecured debt consolidation loan is that you take on none of the risk. If you are unable to pay back the loan and end up defaulting on it, there’s no danger for you in losing any of your assets.

Unsecured loans also tend to offer a lot more flexibility than secured loans. Lenders are often more willing to negotiate the terms of repayment. This means potentially stretching the repayment period anywhere from one month to three years. If you meet your repayments with no delays, there is also a greater chance of being able to take out further loans in the future. This builds your credit score and sets you up as a credible and reliable customer. With a high credit score, you have a greater chance of taking out future loans with a better interest rate attached. This is because you are considered less of a risk.

Another advantage is that you may not have an asset to your name. This means a secured debt isn’t even an option for you. Being able to take out an unsecured debt gives you the chance to consolidate your loans. From here, you can get back on track financially, even if you don’t have an asset to your name.

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Take Out A Loan Today

You might be wondering how you can go about taking a debt consolidation loan out. Speak to an expert and receive the best advice possible for your personal situation. The experienced team at Debt Consolidation can provide advice or financial assistance to help you. Contact us today and get on the right path to becoming debt-free.

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