Poor credit rating limits approval for most type of loans and even if approval is possible, the loan terms are changed to fit the risk implied within the monetary transaction for the lender. In order for a loan to be ideal for debt consolidation, you will find however, certain terms that need to meet some requirements and poor credit may prevent this.

Secured and Unprotected Consolidation Loans: Secured consolidation loans are home collateral loans or second mortgages that use your home equity to guarantee the loan amount. The interest rate charged for this type of loans is reduced and therefore, they are ideal for consolidating debt. Since the loan is assured, there are not tough credit requirements and somebody with bad credit can quickly get approved.

Unprotected consolidation loans have no collateral at all and therefore, the risk involved in the financial transaction is greater and so is the interest rate charged for them. The lack of collateral also implies that the financial institution will have a lot more strict demands for approval and though somebody with bad credit might get accepted, he will be required to pay higher interest rates.

Therefore, bad credit applicants should be divided in two: those who are home owners and thus, despite their poor credit can acquire an acceptable interest rate and those who are non-homeowners and need to turn to unsecured consolidation loans. The latter, even if these people meet the requirements and get approved for an unsecured consolidation loan, chances are that they will have to face greater interest rates and thus, consolidating with a higher rate makes the transaction too burdensome to be useful.

Consolidation Loan Amount: The loan amount is also an important concern, depending on the amount of outstanding debt you have, you will need to apply for a high amount of consolidation loan or a small or medium amount consolidation loan. High loans can only be obtained via secured consolidation loans and thus, only those with poor credit who are homeowners can settle high amounts of debt.

Those who are non-homeowners can only obtain small to moderate loan amounts by asking for an unsecured consolidation loan. Otherwise, non-homeowners need to do the hiring of a debt consolidation company that may negotiate with creditors new loan terms since qualifying for an unsecured consolidation loan with bad credit is tricky and you can’t get high loan amounts.

As you can see that acquiring a these loan is nearly impossible for tenants and non-homeowners. It is much better for them to hire a debt consolidation agency and have the money they owe re-negotiated. However, those bad credit applicants who can offer a good thing as collateral can get secured consolidation loans for fair amounts in order to exchange their expensive debt for a single and cheaper loan.

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