How Settlement Works

Secured Debts

When a loan is made but the borrower is required to put up some sort of collateral to receive it - it is known as a secured debt. Because the lender has secured the loan with the collateral, they are able to offer better interest rates than they would on an unsecured loan, because they have something to take (the collateral) and sell in the event the borrower defaults on the loan.

A secured debt consolidation loan is the most popular type of consolidation, as it provides the borrower with the lower interest rates needed to make consolidating worthwhile, and allows the lender to work with people who may otherwise be considered to much of a risk.

Usually only homeowners are eligible for a secured debt consolidation loan, but in some cases other types of security are accepted; it all depends on the amount of money needed to pay off your debt, and what other types of security you might have to offer.

A secured debt consolidation loan has two distinct advantages over an unsecured loan:

The rates are significantly lower than they would be for an unsecured loan. This means you can pay off your balance quicker, or lower your monthly payments.
Having bad credit does not usually affect your chances of approval as much, because the lender has collateral to work with.

Of course, a secured loan has the one obvious downside as well, if for some reason you cannot make the agreed payments on the debt, you may lose the collateral used for the loan. If you're using something like your house especially, be very sure you can pay on the debt as agreed to ensure that what you put up as security is not taken by the lender.