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The debt consolidation loan means taking out new loan to clear all other consumer debts. The multiple debts can be united into single load head — generally unsecured personal loan, with more favorable pay terms towards borrower. It is an interesting debt financing tool to lift the burden of debt off your shoulders.
1. Secured Debt — With a secured debt consolidation loan, a borrower need to provide collateral as a security e.g. your home, car or any other valuable assets. Example — HELOC consolidation; utilizes your home as a collateral and ultimately you can enjoy lower interest rates on Debt Consolidation Loan.
2. Unsecured Debt — In case of unsecured debt consolidation loan, you don’t need to provide any security or collateral. However, you need to compete for interest rates with the lending platforms. Peer to peer lending platforms falls under this category.