Unsecured Consolidation Loan
What is an Unsecured Consolidation Loan? Well, let’s separate this question into 3 parts. The 1st part of this answer will speak to the question of:
1. What is a secured loan?
Essentially, there are 2 types of loans. The 1st type is known as a secured loan. This means that the entity that is lending you the money holds possession of one of your assets until you have paid the loan amount back in full.
The collateral used in this type of loan is typically a house; however, lenders have been known to be flexible and use items such as a car, RV, boat, or some other piece of property that has substantial monetary value. This really depends on the lender as well as the amount that the total loan is for.
The benefit of a secured loan is that you receive lower interest rates as oppose to an unsecured consolidation loan where interest rates are a bit higher.
The next answer will speak to the question of:
2. What is an unsecured loan?
As I am sure you have gathered, an unsecured consolidation loan is the opposite of a secured loan. This means that the lender is allowing you to borrow money from them based on your signature. An unsecured loan does not require that you have any assets that can be used for collateral.
Given the fact that this is a gamble for the lender, the downside for the borrower with an unsecured consolidation loan is that interest rates are higher with unsecured loans.
The benefit of this type of loan is that if you do not own any property that can be used as collateral, then you can still receive a loan; so long as you agree to pay a higher rate of interest.
The next answer will speak to the question of:
3. What is a consolidation loan?
A consolidation loan is a loan that combines all of the debt that you have into 1 lump sum. This allows you to have 1 monthly payment rather than many. Typically, the monthly payment is lower than the total of your previous payments and you will also save money because you are paying on only 1 interest rate.
So, if you take the definition of an unsecured loan and combine it with the definition of a consolidation loan you then have the definition of an Unsecured Consolidation Loan.