Low Interest Debt Consolidation Loans

There are two main types of low interest debt consolidation loans. Depending on your financial situation, such as the assets you own and your credit score, it may not be possible to qualify for either of these options, which are detailed below. If you want to hear about all your debt consolidation options, submit a form today and speak to one of our representatives.

Unsecured Debt Consolidation
A low interest unsecured debt consolidation loan is not backed by any hard asset such as real estate. A borrower with good credit can obtain an unsecured loan from most lenders. The interest rate on an unsecured loan is usually higher since the lender has to compensate for the risk inherent in giving a loan without any collateral. If the borrower defaults, the lender has no recourse other than to sell the loan to a debt collector. Interest is the price of money and the riskier the money, the higher the price.

Unlike a mortgage, the interest on an unsecured loan is not tax deductible. The loan may expire at the end of a set term, in which case the interest is also probably fixed. It is unwise for the borrower to apply for an adjustable-rate loan, as that may backfire on him if interest rates start to rise or if financial and economic conditions change. Interest rates can be over 10 percent in some cases on unsecured loans. Borrowers need to think carefully before using an unsecured loan to repay their debts. They can easily increase their total unpayable debt load with such a loan.

Secured Debt Consolidation
Secured low interest debt consolidation loans are much safer for the bank, but not necessarily the borrower.The asset used to secure the loan can be real estate, investments like stocks or bonds and personal belongings like jewelry. The salient point is the value of the asset must equal or exceed the value of the loan. Lenders prefer assets that do not experience volatile upswings and downswings in price, so stocks and bonds are less preferable than real estate.

Interest rates on secured loans tend to be lower since the risk to the borrower is lower. The borrower can use a concept called interest rate arbitration. He takes out a secured loan with an interest rate lower than the rates on his outstanding debts. By repaying the high-rate debts, he immediately saves money by cutting his monthly payment. Now all he has to do is repay the debt consolidation loan, and he is good to go. A low fixed interest rate is the best solution for a borrower caught in a spiraling web of monthly payments.