Debt consolidation loans are a popular option for people opening money every month by consolidating multiple monthly credit card payments into a lower interest loan. But the question is whether it is best to get the debt in equity of a home or an unsecured debt consolidation loan.
Debt Consolidation Home Equity Loans
A home equity loan will get you a one-time lump sum of money secured in the form of a second mortgage that is after the equity in your home. Equity is the difference between how much the house is worth and how much you total on it.
A second mortgage loan is usually a fixed rate loan with a discount that is slightly higher than that of the first mortgage loan, unless it is a 125% loan-to-value (LTV) loan that the homeowner borrow over the value of their home loan Houses. These courses usually run a lot higher that other second mortgages and origination fees can balance as much as 10% of the loan.
Home equity loans tend to be repaid in less time than first mortgages, with repayment usually being times between 5 and 20 years. As a first mortgage, you have to pay off the balance of a home equity loan when you sell your home, so it’s best to find out if there are any advance payment sanctions or balloon payments on your loan if you decide who start the loan or sell your home before the loan is due.
Pros and Cons of Home Equity Loans
The greatest benefit of a debt consolidation home equity loan is that most states allow you to deduct up to 100% of the interest you pay on your taxes. Other advantages are the fact that home equity loans usually have a lower interest rate than unsecured loans and borrowers can get relatively large amounts of money.
While the home equity loans have attractive advantages, there are also major disadvantages. One of these is that if you don’t get the payment schedule from the loan, the lender can foreclosure on your home and you will lose even if you go into bankruptcy. Secured loans are not dischargeable from Chapter 7 bankruptcy.
Another major disadvantage is that exploitative lenders target homeowners, especially those with low income or bad credit. According to the Federal Trade Commission (FTC), there are many fraud suppression practices, including:
Share Stripping: The loan will be processed based on the justice in your home, not on your ability to repay.
Credit Insurance Packaging: The lender adds credit insurance to your loan that you may not need.
Bait-and-switch: The lender has a number of loan terms when you, then you pressure in higher costs when you are on the transaction.
Deceptive Loan Servicing: The lender does not pay with correctness and completeness of bank statements and payout. This makes it almost impossible for you to determine how much you pay and how much you owe.
If you are not sure whether a home equity loan is right for you, you can get an unsecured personal debt consolidation loan.
Personal Unsecured Debt Consolidation Loan
If your credit is relatively good and they are busy, you can get a personal unsecured loan to pay off some or all of the high interest credit card debt. With a personal unsecured debt consolidation loan, there is no security against the loan. This means that the lender will only honor your promise to repay the loan after the loan sales and terms. While the loan amounts are not as strong as that of home equity debt consolidation loans, they can be up to $ 10,000. Loans up to $ 1000 is not even a credit check.
When shopping for a personal unsecured debt consolidation loan, it is important to shop to get the best rates and loan terms included. Unsecured debt consolidation loans have lower interest rates than credit cards, but they usually have higher interest rates than secured personal loans like home equity loans. Some loans allow you to pay back anywhere between one and five years, which can ease the financial burden.
Pros and Cons of Personal Unsecured Debt Consolidation Loans
The big advantage of getting an unsecured debt consolidation loan is that if you are forced into bankruptcy, the unsecured debt that goes into bankruptcy.
The main disadvantage is that you need good to very good credit to get an unsecured debt consolidation loan, and the amounts tend to be less than a home equity loan. The interest rates on unsecured debt consolidation loans are usually much higher than that of a home equity loan, and it is not uncommon for a debt consolidator to get a commission of 10% or more on the new loan.
The answer to the question of whether you should get a debt consolidation home equity loan or unsecured personal loan all depends on your financial circumstances. If you are busy with a relatively good credit, and just need to consolidate a few debts, you can get yourself an unsecured personal loan. However, if your credit is not that good or you have a lot of debt, a home equity loan is your best answer.