While approaching the loan provider for an unsecured debt consolidation loan, there were several fears in your mind. Many of your colleagues were against unsecured debt consolidation loans because of the very high rates that they come with.
However, there was little choice with your house already serving collateral for the mortgage.
However, it will be clear very soon why unsecured debt consolidation loans are used as the first preference rather than the last resort.
The very first advantage of unsecured debt consolidation loans is that home or any other asset of the borrower may not be used as collateral. Thus, the loan provider does not have a direct charge on the borrower’s home.
This may not have any particular advantage during the ordinary course of the loan. However, when repayment on the unsecured debt consolidation loan has not been made, a borrower gets time and opportunity to re-negotiate repayment.
Loan providers, however, will not lose time in repossessing collateral on secured debt consolidation loans.
Debts keep on adding to themselves through interest. The more significant is the time that the loan provider takes in approving a loan, and thus in debt settlement, the larger will the additions to debt be.
Through an unsecured debt consolidation loan, the borrower can safeguard himself from these unduly additions to debt. Since property valuation is not involved in unsecured debt consolidation loans, they are faster in being approved.
However, the borrower needs to be clean on the credit front. Credit history is an effective method to determine the credibility of the borrower.
Loan providers will fear to offer loans to borrowers with bad credit history where no collateral has been pledged.
However, this may not reject loan applications by borrowers with bad credit altogether. There are loan providers who are risk-taking and allow lending with moderate risk.
Loan providers slowly realize that borrower’s lousy credit is not an absolute indicator of credibility. Many times, borrowers with excellent credit too default on loans and debts.
Unsecured debt consolidation loans for people with bad credit are costlier than regular loans.
Unsecured debt consolidation loans may not allow the borrower to draw as large an amount as the secured debt consolidation loans. This is a method through which the loan provider aims to cover his risk.
This again depends on the lender. A borrower whose needs are more extensive and instills sufficient faith in the loan provider can hope to qualify for a more considerable amount of unsecured debt consolidation loans.
A peculiarity of debt consolidation loans is that the loan provider designates experts to work along with the loan provider to eliminate debts. The facility extends to unsecured debt consolidation loans as well.
Thus, borrowers who feared that they would have to counter deficits on their own can heave a sigh of relief.
The borrowers have only one task to perform in the debt settlement process. Loan providers ask them to total the various debts that they want to be settled.
It is recommended to include every obligation, whether big or small, for debt settlement. There are two reasons in support of the statement. The borrowed amount will not increase much through the inclusion of low debt. These small debts gradually become big by adding up the interest.
The remaining task has to be performed by the loan provider and their trained representatives. It is they who would deal with the several creditors, a duty most debtors would love to be relieved of after the usual haggling with the creditors.
These trained representatives are behind the negotiations that take place on the debts. A better negotiator can help bring down the repayable amount, and thus saving a part of the unsecured debt consolidation loan for other purposes.
It is to be pointed at this stage that an unsecured debt consolidation loan is a personal loan and can be used for any purpose other than debt settlement. Therefore, the loan proceeds can be used for purchasing cars, financing holidays, and also for undertaking home improvements.