Debt consolidation loans can be classified as essentially of two types: secured and unsecured.
Secured debt consolidation loans will require a collateral or security.
Usually this means your home will have to be kept as security with the lender and in the event, that you are unable to repay the loan amount, the lender shall have the ownership rights to your property.
And he can sell off the property to recover the loan amount.
This is the reason that lenders prefer to give secured loans because of security against non-repayment.
Having considered the lender's point of view, secured debt consolidation loan bring many advantages for the borrowers also.
First of all, the rate of interest can be the minimum possible if the borrower has a perfect credit record.
The terms and conditions of repayment of such loans are flexible such as the repayment period can be long and extend up to more than 20 years.
Because of these two factors, monthly installments get reduced to the borrower's convenience.
Unsecured debt consolidation loan does not require a collateral.
The lender, is obviously at risk in this case.
However, non-repayment of the loan amount can attract a 'charging order' from the court.
But the risk still remains for the lender.
It is because of this that the terms and conditions of unsecured loans is not-as-flexible.
The rate of interest is almost higher and often higher for those with bad credit rating.
The repayment period may be short and thus the monthly installments will be high.
The one advantage is that these loans, apart from being risk-free for the borrower, are faster as far as disbursement is concerned.
This is so because there is no property evaluation and so less paper-work.
The major advantages of debt consolidation loans are: a reduced rate of interest, and a single transaction of repayment rather than several.
These are reasons good enough to go for them and to improve on your credit card report.