Do Debt Consolidation Loans Offer Lower Interest Rates?

June 30, 2009 by  Filed under: Debt 

Initially, most people will try hard to avoid the burden of unnecessary debt if at all possible, but it is all too easy to get sucked in and start to spend money they cannot afford on items that they do not really need, and so the cycle of debt begins.

How these debts are managed is a difficulty we all face daily, and many of us will struggle to balance an often increasingly lopsided budget where outgoings outstrip income. It is this daily battle of personal or household finance that usually forces us to look for debt relief.

In many cases debt management programs are the preferred option and without question debt consolidation loans are an important tool of any debt management program. The debt consolidation process involves consolidating all debts into one easy to manage single debt.

The question is whether or not these loans are available at a low enough interest rate to make debt consolidation a viable proposition? Unfortunately, this is a question that is answered differently depending on an individuals’ circumstance.

If you have no collateral then you will be looking at obtaining an unsecured loan of some description. Unfortunately, unless your credit score is very high, you will find it very difficult to land one of these loans as lenders are extremely reluctant to lend to anyone of any risk at this time due to the credit crunch. (This tight grip on lending may be loosening at present, but ever so slowly!)

However, a guaranteed way to obtain a low interest loan is if a person were in a position whereby they could qualify for a secured loan. To do so they must have collateral that they can offer up as security against the money they wish to borrow.

This collateral is more often than not the home of the person wishing to borrow and the loan is usually a home equity loan, but the collateral could also be anything from a car to jewelry. There are certain factors that will affect the amount you can borrow and the interest rate you will be charged and you must always keep these in mind…

Choice of Collateral:

The collateral you are putting up as security will be the most important aspect when the interest rate of your loan is decided.  The equity you have or the more value the security holds, the more likely it is that you will be offered a lower interest rate.

Your Credit Rating:

The higher the better! Although your credit score will have little impact on whether or not you have your loan application approved, it will have an impact on your interest rate. It is a good idea to apply to the three credit bureaus for your free credit reports. Once you receive these reports, you should try to improve them as much as possible before making a loan application.

Comparison Research:

Get as many quotes as possible to ensure you get the lowest possible rates with the best possible terms. Do not show any misplaced loyalty to any one lender. Always be aware of every other lender and any special deals that they may be offering. Visit as many different lending companies, banks and financial institutions as you can and ask for quotes on all their available loans and then carefully compare them all you can also search online.

Debt consolidation using a home equity or a debt consolidation loan is the most beneficial method of reducing and controlling debt and something that anyone who is suffering under the burden of severe debt should consider looking into.

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