Being strained by a loan with a steep interest rate, it may come natural to you to consider researching lenders to find a debt relief loan. The resulting debt consolidation might lower your monthly payments, extending your loan term, or reduce your interest rate. But, in the end, if you are perilously in debt, you’re only trading off one liability for another.
There are various benefits in applying for debt relief loans, such as consolidating all your of bills into a single payment that you send to the bank every month. But, your debt burden isn’t being eliminated. Instead, it you are reducing some stresses.
In case you’re considering consolidating your debt, there are the two types of debt relief loans to consider – a secured debt relief loan and an unsecured debt relief loan.
Secured Debt Relief Loan
By issuing to you a secured debt relief loan, the lender is protected by a form of collateral or asset. The loan instrument includes an item that you secure in getting the loan, e.g. a car or a property that you own. You don’t need to have the collateral totally paid off to secure the loan. However, if you miss a payment on the loan, a lien could be placed by the lender against your collateral.
A lien will allow your property to be sold by the lender in case you fail to repay your loan on the agreed upon terms. The title to your property passes on to the lending company and stays with them till you settle your debts in full. You may be eligible for larger loan amounts as compared with any unsecured loan, since you’re using actual assets to secure your debts.
Unsecured Debt Relief Loan
Compared to a secured debt relief loan, in you default on an unsecured debt relief loan, the lender doesn’t have any collateral to collect. That’s why such loans a hard to achieve for people that have a lot of debt or bad credit. In this instance, more risk is taken by the lender, who takes a closer look at your employment and credit history. They will most likely check out your statistical likelihood of repaying your loan in time. You don’t pose a high risk if you stay current on your payments and are stable with your employment.
It is also possible to come across lenders offering you unsecured loans although you’ve had a rocky employment or credit history. However, these creditors are likely to offer you much higher interest rates.
In case your debt has spiraled out of control, it would be really difficult for you to achieve a lower interest rate with an unsecured debt relief loan. Additionally, you’d still have to pay the principal loan amount for the entire duration of your loan.