It is important to look for debt consolidation lenders before you have any credit problems to get the better deal. The idea is to group all your existing debt into one payment, and that payment should reduce the monthly payments that you are making. This will make paying off your debt cheaper. The interest rate should be lower meaning that the total overall debt will be reduced than if you had done nothing.
To get the best rate from a debt consolidation lender then you need to have a great credit report, this will ensure that the loan that you are offered will have the lowest interest rate possible.
What Is A Secured Loan?
A secured loan is a loan that is tied to an asset; it can be a car or your home. If you fail to pay the loan then the debt consolidation lender can sell that item to pay off your loan. If it is your home then you will find yourself homeless and it will not matter if the value of the home is higher than the debt, they are just looking to recover the costs and you will not be entitled to the difference it will be sold off. It is possible for your home to be sold off for a fraction of the amount that it is worth.
What Is An Unsecured Loan?
An unsecured loan means that you do not have to lose the possession of your home or car if you default on the loan. But what you will face is higher interest payments. The risk is higher that you will default and this is then reflected in the rate of interest that will be offered if you are accepted for the loan. The better your credit report the lower the interest rate that you will be offered.
It is important to realise that if you are looking for a consolidation loan that the companies are going to think that you are having problems with your loans at the moment, meaning that they are going to see any consolidation loan as a higher risk loan.
The debt consolidation lender will look at your position carefully and will need to assess if you can afford the loan. It will delay the time that it takes for the loan to be processed. They will want to study your credit report to see if there are any problems that could indicate that you are a high risk of default.
You might be asked to provide some information and this can include:
- The last few years tax return
- Financial statements from your bank
- Application for credit
- Proof of your income
They will want to know about ay debt that you already have including:
- Credit card debt
- Personal loans
- County court judgments
- Car loans
- Mortgage payments or rent
It is possible that if you are approved for the loan that they request certain conditions that will need to be adhered to otherwise you might be asked to repay the loan sooner. Those conditions can relate to the closing of credit cards after they have been paid off.
The debt consolidation lender must prove that they have taken your circumstances under review and that you can afford to pay the loan and that they haven’t made your financial situation worse than it already is. This is called due diligence and is sometimes used as the reason for the credit being rejected.
It is possible to obtain a consolidation loan even if you have got a bad credit report. It will reflect badly in your circumstances and it will mean that you will need to pay higher interest rates than if you had a great credit file. It will have a negative impact on the product that you will be offered. You will need to check that the loan will pay off all your debts and will be cheaper than if you continued paying them individually. It has been known that a debt consolidation loan to have higher interest rates than what you have got already. So it is important to have this information to hand and to make sure that the product that they are looking at offering you will in fact save you money each month and not make the situation worse.
Make sure that the company that you choose to do business with is a respected company and that they are going to help you. Some companies are better at helping than others and it is important that you are able to research the company to find the best one for you.
Therefore if you are considering getting a debt consolidation loan that you have all the information from your debts so that you can compare the product that is being offered. You are looking at reducing the payments and the interest that you are paying.