Unsecured Debt Consolidation Loan

Unsecured debt consolidation loans are loans that are not backed by a collateral.  Because there is nothing guaranteeing the loan, the lender faces more risk and compensates for it through higher interest rates. If you are applying for an unsecured loan, a good credit history is

a must.  Lenders place much emphasis on your credit rating because they will not be compensated if you default since the loan is not guaranteed. To reduce risk further, this type of loan usually has a shorter repayment period, normally lasting between 6 months and a couple of years.  Monthly payments are paid on principal and interest and are higher than for a secured loan.

Secured debt consolidation loans are loans where the borrower pledges an asset, such as a house, a car, a boat, a life insurance policy, or investments to guarantee repayment.  If the borrower defaults, the lender can cease and sell the asset for reimbursement.  Secured loans offer much more favorable terms than unsecured

loans because the lender faces less risk.  They are characterized by low interest rates and monthly payments, and a term that normally lasts from 5 to 30 years. Lenders will prefer but definitely not require a good credit history because the loan is guaranteed by the asset you pledge.   In fact, with a secured loan borrowers are usually not required to supply details of their credit history at all.