A debt consolidation loan has become a magnificent solution; it allows you to merge multiple debts into one single loan. Consequently, you will be less overwhelmed. However, some people are still unaware of the existence of debt consolidation loans without collateral required. Below is the complete information.
What is Debt Consolidation?
Debt consolidation loans offer you the opportunity to combine existing debts into one single loan, and thus you may focus on fulfilling the responsibility of debt repayment with terms from only one tender. It is favourable due to its benefits, such as lower interest rates and lower monthly payments.
In addition to that, there are two types of debt consolidation that people do not know of, which are an unsecured loan and a secured loan. In general, an unsecured loan is known as a personal loan, whereas a secured loan is related to a home loan or anything that is tied to properties.
What is the Secured Debt Consolidation?
A secured debt consolidation loan requires your house as collateral. It acts as a guarantee that you are committed to paying off the debt according to the monthly payment and other agreed terms. Hence, receiving approval for a particular consolidation is easier than the unsecured one.
You do not need to maintain your credit score to be granted a lower interest rate and other benefits. Yet, your house will be taken away from you if you fail to fulfill the agreement of the debt repayment.
What is the Unsecured Debt Consolidation?
Different to a secured one, this particular strategy of debt repayment is the debt consolidation loans without collateral required. However, the requirements to apply for the consolidation are stricter, including a good credit score. The minimum is 670. A higher score increases the possibility of receiving a lower interest rate.
Nonetheless, a poor credit score lower than 670 will risk you a rejection from the lender. In addition to that, there are several risks that you may face if you do not pay attention to the agreement at the beginning, such as an unfixed interest rate and other hidden fees.
Types Of Debt Consolidation Loans Without Collateral Required
If unsecured debt consolidation loans fit your financial situation, there are several options that you must learn further. Below are the three options and their differences and benefits.
1. Unsecured Personal Loans
The unsecured personal loan is quite beneficial if you expect a simplification of your repayment process. Also, the monthly payment and the interest rate are fixed in the beginning. Some lenders even offer discounts, the absence of any penalties and other specialised benefits.
It is the perfect option if you truly need something to take off your burden. However, most of them subject you to a penalty of completing your debt before the agreed duration.
2. Peer-to-Peer Loans
A peer-to-peer loan is one of the debt consolidation loans without collateral required. Thus, you are eligible to request consolidation from individual investors or lenders despite your bad credit score. There are quite a few benefits to choosing this method, especially for those who are not able to request from traditional banks.
One of them is the chance to increase wealth or to recover your credit score. However, most private lenders set higher interest rates than usual to secure the agreement. In addition to that, the duration of repayment is quite brief in many cases.
3. Balance Transfer Credit Card
Balance transfer credit card is a common strategy to move the existing balance of your credit card to another one that has a lower interest rate, especially within the annual percentage rate (APR) introductory period. In other words, you are expected to transfer the balances between 60 to 120 days after opening the new credit card.
For instance, your credit card balance is exactly $3,000, with a 30% APR. It implies that you are paying $900 in interest at the moment. In addition, let us assume that the balance transfer fee is not 0% but 3%. This means that you must pay $90 to transfer your whole balance, which is $3,000.
However, if you manage to get a 0% transfer fee, the simulation above does not apply to you. Yet, you must be very careful because credit card interest rates are generally higher than normal personal loans.
How to Get 100% Approval of Debt Consolidation Loans Without Collateral Required
A loan approval of any kind requires a thorough and deep analysis from the lenders. But, afraid not because you can actually increase your eligibility to receive the debt consolidation of your choice. What should you do? First of all, you should attempt to improve your credit score, by at least 670.
You can start by restricting yourself from spending on credit cards and fulfilling monthly repayments in a timely fashion. Secondly, it is necessary to refrain from spending too much on unnecessary things. You can start by making a list to focus on your primary needs to reduce secondary and tertiary needs.
Third, you have to make sure that you learn the offer of the debt consolidation loans without collateral required from various lenders or brokers. This is because each of them has different requirements. For example, some lenders do accept potential borrowers with low credit scores, or below 670.
How to Remove Loans From Debt Consolidation Loans Without Collateral Required
Making another loan might make you anxious. So, there are several options you can choose to avoid creating another debt. One of them is to contact your creditors. You should not fear them and negotiate so that your struggle may end, such as extending the payment date.
Are You Ready to Get Out of Debt Faster?
So, those are the types, their benefits and methods to improve your chance of getting approval for debt consolidation loans without collateral required. Remember that to be debt-free is not out of your grasp after all.
However, it is also recommended to find second opinions from professionals and learn about the requirements given by the lenders thoroughly. As a result, you will not stay clueless and educate yourself more about anything related to debt consolidation loans.