Secured Debt Consolidation Loans: Everything That You Need to Know

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According to, almost 107 million American citizens have auto loan debts. A secured loan is referred to the loan contracts in which the borrowers are responsible for putting up collaterals like their car or home for acquiring immediate cash. They agree with the fact that the lender is gaining legal ownership of the particular collateral in case if the borrower cannot clear the loan. A home mortgage is undoubtedly one of the common types of secured loans, which make use of real estate as the collaterals. Your lender is going to remain confident that you will clear the loan timely, because in case if you fail to do so, you are going to end up losing your home.

If you do not have any collateral, you are not going to get the secured loans and miss the primary benefits. The primary benefits include the low rate of interest, a high loan amount, and the extended terms of repayment. Credit card debts are the best examples of the unsecured loans because the lenders cannot seize your assets even if you are unable to clear the loan amount.

Before offering any kind of loan, the lenders are going to check the income of the borrowers as well as the credit history in order to understand who they are going to deal with. Lenders will be comfortable in lending money especially if a particular asset is securing the loans. For a particular consumer, this means a low rate of interest and also high limits of borrowing, based on the collateral value.

How does a secured loan work?

The lender demands for the collateral that has greater value in comparison to the total loan amount. For example, you can borrow a thousand dollars if you are offering your $2,000 car as the collateral. If you are defaulting, the lender is going to get the car and sell it off, thereby recouping the total money, and he also ends up gaining a profit.

It is true that not a single person wants to lose their collateral. Lenders already know this and hence they accept the low-interest rates understanding that the borrower is going to have a big incentive of clearing the loan amount. This is one of the main reasons as to why the secured loans are easier on the wallet.

The rate of interest is tied down to the ability of the consumer to clear the loan and the collateral value that has been put up by him. This process is similar to making home loans. Lenders are going to ask for legit documentation regarding the income and they are also going to carry out research on the credit history. They are going to demand an appraisal of the value of the home along with the down payment, which is going to guarantee that the lender will not lose the money even if the borrower is defaulting on the loan.

Pros and cons of the loans for secured debt consolidation

A debt consolidation loan is normally marketed with numerous promises as well as numbers, which cannot be understood easily. However, you need to understand that a secured debt consolidation loan has both the good as well as the bad aspects. Consumers should understand all the details associated with the secured debt consolidation loans so that they do not face any trouble in the future.

The good associated

Given below is a list of the best aspects of the secured loans, which you should know about.

A positive influence of credit: Simply adding one more loan to the already existing loans can definitely have a negative impact on the credit rating. However, a secured loan is not going to work in that manner. Since you are making use of the money as a tool for debt consolidation, you are not going to see any negative impact on the credit, especially if all the payments are made on proper time.

The low rate of interest: It is true that certain exceptions are there to this rule, but you cannot deny the fact that most of the debt consolidation loans have no interest rates. If the rates are extremely low, you are going to save money during the lifespan of the secured loan.

Monthly payments: An important driving force, which works behind the debt consolidation loans, is that it is responsible for low monthly payments at the end of every month. This is definitely going to be your lifesaver if you have a strained budget already.

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The bad associated

Given below is a list of the bad associated with the secured debt consolidation loans.

Security: A borrower is responsible for offering a tangible property in order to guarantee to the lender that he is going to repay the loan. This property is normally the home of the borrower. You have to understand that the home can be repossessed as well as sold in case if you are falling behind the loan payments.

Loan terms: Secured loans are responsible for providing long terms of repayment of almost 25 years. Therefore, even when the interest rate is low, you are going to pay a lot more if you take 25 years for settling the debt. Therefore it is your responsibility to consider the terms of the loan carefully.

Interest rates: Borrowers are going to get better interest rates on the secured loans. Nevertheless, this is something that is not going to be true for a person who has bad credit. A person with bad credit rates can get high-interest rates and in that case, borrowing money is not going to be worth it. Ensure that you understand all the differences, which exist between the fixed and variable rates.

One thing that you have to keep in mind is that consolidating the debts into the secured home loan is going to be extremely risky if you do not take care of the spending habits.


A secured debt consolidation strategy is going to be effective especially when you want to become financially sound. You can also opt for the advice from the loan experts in case if you are confused.

Author Bio

Kelly Wilson is an experienced and skilled Business Consultant and Financial advisor in the USA.  She helps clients both personal and professional in long-term wealth building plans. During her spare time, she loves to write on Business, Finance, Marketing, Social Media. She loves to share her knowledge and Experts tips with her readers.

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Learn More About Being a Survivalist. My name is Jack and my blog is a great way to get new and useful tips on how to get your house ready for anything, whether its a terrible storm or a really long power outage.

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