Personal Loans For Debt Consolidation - Consider This!

Are you considering Personal Loans For Debt Consolidation or want to know if you qualify for one? Consider this ...

Sometimes when your bills become unmanageable, the best course of action seems to be getting a debt consolidation loan to pay off all, or at least several, of you smaller bills. Most often people look to pay off outstanding credit card debt because the interest rate is usually extremely high. If you have a good credit score, you may qualify for personal loans for debt consolidation, but they are getting more difficult to come by because of the current state of the economy.

If you don’t have extremely good credit, well over 600, you can probably forget about qualifying for a personal loan. In previous years, scores at or just above that figure would have been acceptable. Unfortunately, since the recession hit, altogether too many people, even people with great credit, have defaulted on loans. Before you even consider applying for a personal loan there are certain things you should be aware of:

• Unsecured – Personal loans are based solely on your credit history. They are not secured by collateral.
• Higher Rates – Personal loans carry higher rates because they carry higher risk.
• No tax benefits – Unlike mortgages and other secured loans, the interest on unsecured loans is not tax deductible.
• Fixed Term – If the loan is due at a fixed date, the rates tend to be fixed as well and not variable.

So, thinking about this logically, you can see that since a personal loan is based solely on your credit history and is not secured by any real or tangible property, you had better have a pretty darn good credit rating. Even people in the 700’s are being denied personal loans of late. There is greater risk to the lender and many of them are just unwilling to take that kind of risk with the current state of the economy. There is nothing the lender can foreclose on or repossess to get their investment back should you default. For this reason, most financial institutions have extremely strict underwriting guidelines when it comes to unsecured loans.

Based on the fact that personal loans, by their very nature, carry higher risk to the lender, they will charge higher interest rates accordingly. Those rates would probably be lower than credit card rates, but higher than the rates of a secured loan. If you have no real property to offer as collateral, a personal loan would help you pay down your debt if you could qualify. But again, that brings us back to the problem that it is extremely difficult to qualify for a personal loan unless you have perfect credit.

People who own property often either refinance their homes or apply for home equity loans because the interest they pay is tax deductible. You won’t get any tax write-offs for interest you pay on unsecured personal loans.

There is one other thing that is very important when you are considering applying for a personal loan. They are, for the most part, fixed term loans. For the sake of example, let’s say you want to borrow $10,000 to pay off your existing credit card debt. You may get that loan but it might be amortized over a two, three, or four year time period. Your payments, even though the interest is lower, could end up higher each month because they come due at a specific point in time and all interest plus principal is due in full by that specific date.

Just be aware of the fact that personal loans are not the easiest loans to qualify for. If you have perfect credit you might stand a chance, but if not, you will probably need to seek some other kind of debt consolidation loan.