Secured Loan for debt consolidation- Bad Credit
Multiple loans are a pain. And, dealing with them may not only prove expensive but exhausting, too. Plus, you may end up with permanent damage to your credit profile that’ll deny you future loans.
That’s why financial institutions introduced debt consolidation, a financial arrangement that lets you bring together multiple loans and repay them as a single debt. Such includes credit card debts, personal loans, etc.
While you can still access debt consolidation loans with bad credit, they may end up expensive. If you have a valuable asset you can use as security, then you should give secure loans for debt consolidation with bad credit a shot.
We go deep into this loan product and point you to the top lenders today. Check this out;
- EST. APR
- loan Amount
- Min. Credit Score
Payoff
- 5.99%–24.99%
- $5,000–$40,000
- 640
PenFed
- 6.49%–17.99%
- $600–$20,000
- Not specified
OneMain Financial
- 18%–35.99%
- $1,500–$20,000
- Not specified
- APR range
- Fees
- Terms
- Amounth
- Unemployment protection
Bank 1
- 6.95%–35.89%
- Up to 5% transfer fee
- 3–5 years
- $1,000–$40,000
- No
Bank 2
- 6.95%–35.89%
- Up to 5% transfer fee
- 3–5 years
- $1,000–$40,000
- No
Bank 3
- 6.95%–35.89%
- Up to 5% transfer fee
- 3–5 years
- $1,000–$40,000
- No
Table of Contents
How Secured Loan for debt consolidation works?
Secured loans for debt consolidation, also called second charge mortgages or homeowner loans are similar to unsecured loans. Except for the fact that for secured debt consolidation loans, you’ll need collateral.
You’ll be offered a loan against your asset. That makes secured debt consolidation loans less risky to lenders. Hence you are more likely to be awarded lower rates and more flexible loan terms compared to those of unsecured consolidation loans.
However, they are risky to borrowers. You could lose your asset to the lender should you breach the lender agreement.
Please note that the lender has no right whatsoever to take over the property you offered as collateral before the term of the loan elapses and you are unable to make repayments as agreed.
Secured debt consolidation loans are mostly preferred by borrowers with poor credit scores. As long you own a valuable asset and are willing to offer it as security, your eligibility criteria will be assessed differently.
Security on your loan will also likely win you a longer loan term, usually 5 to 25 years for a typical secured debt consolidation loan. However, this can be a disadvantage in the long run since longer loan terms mean more interest paid.
You can use your car, home, or any valuable property to secure your consolidation loan product.
Requirements to qualify
Requirements for eligibility for a secured loan for debt consolidation differ from one lender to another.
But first, you’ll need to meet the minimum requirements. First off, you should be legally residing in the United States, aged 18 years and above. To verify this, the lender will need a copy of your ID, passport, or driving license.
Once you have these in check, you’ll then proceed to submit a formal application. You’ll fill out the paperwork with your basic financial and personal information. That includes your name, address, social security number, and address.
Your loan history will also come into play here. The lender will check it to see how reliable you were with paying your past loans. This is key in deciding whether or not to offer you a loan.
Most lenders will also ‘perform a credit check on you. However, this will not exactly form the basis for approval or denial is given the security you offered.
Secured loan for debt consolidation application process is often complex, like that of a mortgage. The lender assesses the value of your home, or any other valuable you offered as security. The more valuable your security, the more the lender confidence in you.
As such, you’ll enjoy faster approval, and more flexible terms like we earlier stated.
Factors to consider
Secured loans for debt consolidation loans, like any loan products are key determinants of your financial health. They can help or hurt your financial profile in equal measures.
Therefore, knowing when to take them is the basic, yet one of the most crucial steps to take. Secured debt consolidation loans will only make sense if;
Your savings are not depleted by loan fees
You don’t want to go for loans when you’ve sunk deeper into debts that you can hardly recover. This will only make your situation worse. And you are more likely to lose your property to the lender because of accumulated penalties and fees.
You can keep up with repayments
Before going for consolidation, ensure you can afford your new loan. Engage your lender so you can agree on an affordable monthly repayment amount. Such will help you avoid the extra costs associated with penalties associated with late repayments.
Going for a loan product you can afford to repay will also help you avoid losing the property you offered as collateral.
You plan to use it to get back on track financially
Debt consolidation is meant to save you from drowning in debts. It’s meant to grant you a second chance by repaying all your existing debts so you only remain with one loan which is easier and cheaper to repay.
Don’t view consolidation as a way to open doors for more loans. You should strive to avoid any situations that will likely place you in a recurrent debt cycle. Only go for loans when it’s absolutely necessary.
The loan comes with lower interest
Consolidation only makes sense if your new loan comes with lower interests than what you are paying for your current debts. You, therefore, want to compare rates for different lenders till you find the one with the lowest rate.
Generally, secured loans for debt consolidation attract lower interests than their unsecured counterparts. As long as you have a valuable asset as collateral, you won’t have a hard time getting lower rates.
Ensure you have a proper repayment plan put in place. You should have a proper fallback plan should your income get depleted.
Pros and cons
| Pros | Cons |
|---|---|
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Easy qualification – borrowers with bad credit scores can easily qualify for secured debt consolidation loans. the presence of security will increase the lender's confidence in your ability to repay the loan. Easy qualification – borrowers with bad credit scores can easily qualify for secured debt consolidation loans. the presence of security will increase the lender's confidence in your ability to repay the loan. |
You risk losing your asset – you could lose your asset to the lender if you breach your lender agreement. That can be mostly through late and missed repayments. It gets even worse if, after the resale of the property you offered as security, the funds raised still can’t offset your loan. |
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Flexible loan terms – secured consolidation loans generally carry a loan term of 5 to 25 years. Most lenders will willingly offer you longer terms as long as it matches the value of your loan security. And, after settling on a term, most lenders will often allow you to change according to your present circumstances |
Longer loan terms – extended loan terms will have you paying more interest. This, therefore, makes them expensive in the long run. |
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Lower rates – since they are less risky to lenders, secured debt consolidation loans will often attract lower interest rates. Such make them cheaper. Plus, you’ll also be able to pay off your loan within a short time |
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Brings different debts together – the main purpose of consolidation loans is to integrate your existing debts into a single loan. This way, you’ll easily budget and you’ll hardly skip or make late monthly repayments |
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Average debt consolidation secured loan rates
What you pay as interest on your debt consolidation loan will depend on your credit score, income stability, the market average, and the lender in question.
Borrowers with bad credit scores often pay the highest rates. Lenders consider their past repayment history, which is mostly bad, to set their rates.
Similarly, borrowers with high debt-to-income ratios tend to pay higher rates since most lenders are not confident in the ability to repay the loan.
However, offering collateral will likely work to your advantage. Good security restores the lender’s confidence in your ability to repay the loan.
Similarly, your income history will play a major role in determining what rates you’ll pay for your loan. A higher-income will also earn you the lender’s confidence in your ability to repay your loan.
The table above has listed some of the best lenders with the best rates in the market today. Be sure to approach any of them for secured consolidated loans.
Can I boost my bad credit score?
Yes. Boosting your credit score will not only get you loans with most lenders but win more flexible loan terms, too. A good credit score can also have you paying lower rates than you normally would with bad credit.
You can boost your credit score by;
- Paying off existing debts – strive to pay your student loans, personal loans, and medical bills. Doing so will have your lenders sending a positive report to credit agencies who’ll in turn award you a higher score. Avoid late and missed repayments, these a negative mark on your credit profile
- Pay off your bills on time – Strive to pay off your bills, especially your credit card debt repayment and utility bills before they are due or on time. A single late repayment can pull down your score by up to 50 scores. A series of early repayments will play to your advantage with credit agencies awarding scores
- Keep your credit card balance to a minimum – Maintaining a low usage on your credit card will signal credit agencies that you are not cash-strapped, and you can pay off your bills. Doing so also reduces your credit utilization ratio, a sign most credit agencies use to boost your score. You’re advised to keep your usage to 30% and below
- Avoid applying for multiple new credit cards – your credit score will take a hit when you apply for new credit cards. Multiple credit card applications will often signal lenders and credit agencies that you’re deep into debts and are taking some new ones to bail you out. Further, multiple credit card application will mean multiple hard inquiries which will cost you some points
- Keep your credit accounts open – As long as they don’t cost you a dime on monthly charges, avoid closing your credit accounts, even ones you don’t use. The older your accounts, the more favor you’ll have with most lenders. Also, work to resolve credit accounts with delinquencies and charge-off. Such will likely increase your credit utilization ratio. The same applies to credit accounts with multiple late and missed repayments
- Regularly request for your credit reports – Regularly get your credit reports from any of the three major financial agencies – TransUnion, Equifax, and Experian. While at it, be keen to note any errors. When you do, immediately notify your credit agency and file for a dispute.
Alternatives to secured loans for debt consolidation
If you don’t wish to take the debt consolidation route, you can try any of the following options;
- Debt relief services – these are offered by debt settlement companies. They are non-profit companies that work to negotiate lower rates with your lenders on your behalf. However, you’ll part with higher fees. Compare what different companies charge and settle with what best fits your budget
- Credit counseling – credit counseling companies are basically after educating borrowers on budgeting, money management and also help them get out of such debt situations as repossessions and bankruptcy. They also help formulate Debt Management Plan – a program that lets borrowers make a single repayment to them and they use the same to settle your lenders.
- Home equity – Here, you use your home as collateral for your loan. Once approved, you’ll receive the funds in a lump sum, then start repayment immediately. They often carry fixed rates. However, you risk losing your property should you fail to repay your loan.
Frequently Asked Questions (FAQ)
Yes. in a bid to avoid losing the property you offered as collateral, you can tap on debt consolidation.
Yes. Repaying your loans will boost your credit score hence qualifying for some loan products. However, resist the urge to take on new loans that you don’t need.
Double up your repayments, avoid taking on new loans and credit cards, and you can also take on consolidation loans.
If you can get lower interests than what you’re currently paying, and have a good repayment plan, then consolidation can work for you.
Brick and mortar banks, online lenders, and credit unions are excellent sources. Be sure to try any of the ones listed above.
