Secured debt consolidation vs. unsecured

For some people, a debt consolidation loan can be a highly effective way of making their debt more manageable and reducing their monthly outgoings.

If you`re looking to consolidate your debts with a loan, there may be two options available to you: secured or unsecured.

Either way, a debt consolidation loan is quite simply a new loan you take out to clear your other debts in one go, leaving you with just one debt - and one payment to make per month.

Secured vs. unsecured: what`s the difference?

Secured debt consolidation loan

A secured debt consolidation loan uses one of your `assets` as security - a guarantee that you`ll repay the loan (this is usually your house, but you may be able to secure a loan against other valuable items, such as your car). This means that if you fail to keep up on repayments, you could stand to lose the asset.

Because this gives the lender protection against losing their money, you may have access to better interest rates and larger loans than might be the case if you took out an unsecured loan.

You may also be able to repay the loan over a longer period. This can make each monthly payment a lot smaller, although you are likely to pay more interest overall if you extend the repayment period.

Unsecured debt consolidation loan

An unsecured debt consolidation loan is not secured against property. For this reason, the maximum loan amount may be smaller, the maximum repayment period may be shorter (in many cases, around seven years), and the interest rate may be higher than would be the case with a secured debt consolidation loan - your lender is taking more of a risk, as you`re not using an asset as security.

However, many people see unsecured loans as the `safer` option. You will still face consequences if you don`t keep up with repayments, but you are much less likely to lose your home than you might be if you ran into problems repaying a secured loan.

Of course, people who do not own their home (or something else that`s particularly valuable) will not have the option of taking out a secured loan.

Debt consolidation loans with Think Money

If you`re thinking about taking out a debt consolidation loan, our expert loans advisers can search our panel of lenders for the best loan deal for your circumstances.

Note that repaying any debt more slowly can add to the overall cost of clearing that debt. Plus, any debt consolidation loan - whether secured or unsecured - is a type of debt, so it`s vital that you`re sure you can repay it. If you`re not sure you can commit to the repayment terms, you should contact a professional debt adviser, who can help you explore all your options. Click here or call our advisers on 0800 195 2911.

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