If you have bad credit and debt, finding an unsecured consolidation loan can be very tricky. Every lender wants to know that they have a realistic chance of getting their money back, especially if there is no collateral involved – an “unsecured” loan. Unless you get a loan from somewhere that doesn’t do a credit check, you might find yourself out of luck.
What Can You Do While You Rebuild Your Credit?
One way to get an unsecured debt consolidation loan with bad credit is to get a personal loan. Sometimes called a “signature loan”, it is a loan that isn’t backed by any type of collateral. You just have to promise to repay the debt. The easiest place to find a personal loan is usually through a credit union. Banks often will lend money, too, but at a higher interest rate than a credit union, usually.
What Does It Involve?
Usually, an unsecured debt consolidation loan for someone with bad credit can be fairly straightforward. There is less documentation involved (as compared to a secured loan for debts). There is no formal closing process for the loan, just an application, a promissory note, and they might give you a repayment schedule so that you know when, where, and how much to pay.
If the loan is a secured loan involves collateral (like a house or car) there will be much more documentation and authentication, like an appraisal and formal loan documents. It will also take much longer.
What If I Can’t Get An Unsecured Debt Consolidation Loan?
If you can’t get an unsecured debt consolidation loan with your bad credit, then consider getting a secured loan. While a secured loan isn’t as good of a deal for the borrower, something that is the only type of loan possible, as you build your credit back up. Your collateral is typically your home or car, though anything of value can substitute for these. Generally speaking, collateral isn’t cash, though some types of credit cards that are secured are only backed by your savings account (which continues to accrue interest) that is held by the lender as insurance that you will pay your debt to them.
Cautions – For The Unsecured And Secured Loans
Regardless of which type of loan you are able to get to pay off debt, whether an unsecured consolidation loan despite bad credit or a secured loan, there are things to keep in mind.
First, for the unsecured loan, be aware of the interest rate. Because the borrower is taking a much higher risk without having collateral to help guarantee repayment, the interest rate is usually higher than a secured loan.
And, with the secured loan, be aware that if you default in some way – miss payments, late payments, etc., the borrower has the right to claim the collateral. For example, if you don’t pay your mortgage payment, foreclosure is likely. If you don’t pay your car loan, they can and will repossess your car. Be sure you read the fine print before you sign – even if you play to always pay on time. Life happens unexpectedly.
