Secured debt consolidation is the process of consolidating debt with a loan that is secured by an asset. Depending on the preferences of the lender, assets such as jewelry, real estate, personal belongings, or stocks and bonds may serve as the collateral for the secured debt consolidation loan. This approach is often used when the individual wishing to consolidate debt does not have credit considered acceptable for providing an unsecured loan to accomplish the consolidation of the current debt load.
Secured debt consolidation loans are very helpful in assisting people who have already begun to damage their credit ratings due to slow pays and other issues. Because there is more risk to the lender, it is not unusual for the interest on the loan to be somewhat higher than for unsecured loans issued to people with better credit ratings. However, there are still usually a few competitive rates on the secured loans that will be within reason and thus be very attractive to the borrower.
Depending on the nature of the assets available for use as collateral, obtaining a secured debt consolidation loan may be relatively easy. Many banks and finance companies will readily accept real estate as proper collateral for loans of this type. It is also possible to find lenders who are willing to accept stocks and bonds when an unsecured loan is not feasible.
It is somewhat more difficult to find lenders who will accept personal property such as jewelry, electronics, or other major assets that are likely to hold their value for the duration of the loan period. However, there are private foundations as well as other private sources that sometimes accept collateral of this kind. Often, banks that cannot accept more non-traditional forms of collateral can suggest one or more alternative lenders that may be a better fit for the borrower.
In most cases, the current market value of the asset must exceed the total amount of the loan, including the projected interest. This will help the lender to cover any remaining balance due on the loan, as well as any expenses associated with recovery and compensation in the event that the borrower defaults. For the duration of the loan, the borrower cannot sell the collateral without the express permission from the lender.
As with any type of loan, it is important to shop around when looking for a secured debt consolidation loan. Rather than going with the first available lender, it is important to compare the interest rates, amount of monthly payments, and the general terms and conditions offered by several different lenders. This will increase the chances of obtaining the best deal on the consolidation loan, and make the process of repayment more convenient for the borrower.