There are essentially two types of loans available to a consumer.
Unsecured Loans
An unsecured loan does not require the consumer to have collateral. An unsecured loan can be obtained through a bank or a credit union. This option is usually available to those with a good credit rating, and a debt to income ratio that is within acceptable parameters. Obtaining a personal loan or line of credit will allow the consumer to pay off existing creditors immediately, and then repay the loan to the lender at a more favorable interest rate.
Secured Loans
Homeowners have the additional options of obtaining a loan or line of credit secured by the equity value in the home. Choices include a second mortgage (also called a home equity loan) and a home equity line of credit.
A lender will require that the homeowner is fully current on the mortgage, has good credit, and has a debt to income ratio that is within acceptable parameters. Obtaining these types of loans will allow a consumer to pay off their existing creditors immediately, and then repay the loan to the lender at a more favorable interest rate.
Things to Consider
- A loan will only be an effective solution if the consumer closes the credit card accounts.
- Two thirds of all homeowners who take out home equity loans do not close the credit card accounts - and unfortunately, max them out again, creating a far worse situation.
- Using secured options transfers unsecured debt from a credit card to the secured value of the home. Missing loan payments could result in losing the house whereas missing credit card payments has less severe penalties.
- A good place to begin research for a loan would be a local bank or credit union where the consumer does business.
Websites that can provide additional information:
The websites listed are for informational purposes only. Debtscape, Inc. does not endorse nor promote these companies. This information is provided as a courtesy resource, and is not intended to replace consultation with an industry professional.