There are basically two types of debt consolidation loans; secured and unsecured debt consolidation loan. With the secured debt consolidation loan, collateral is required for the amount borrowed. This collateral can be any asset of yours; your home, bank account or car. With the secured debt consolidation loan, you can borrow as much money as you need because the debt consolidation company will make available the money to you as you provide them with enough collateral to cover the value of the loan.

Secured Debt Consolidation Loan:
In a secured debt consolidation company, if you don’t pay up the loan at the end of the term of the loan, the debt consolidation company has the right to take over whatever you place as security (your collateral). This is why this loan is of a lower interest level, and the loan amount of a higher amount than the unsecured debt consolidation loan.

Unsecured Debt Consolidation Loan:
As the name implies, in an unsecured debt consolidation loan, there is no security or collateral placed for the loan. As there is no collateral here, the interest rate for this loan is usually on the higher side, and very often, the debt consolidation company does not make available the exact money you apply for. They usually allot an amount lower than what you ask for so that there is not that much loss if you fail to repay their money. This is also why they also charge higher interest rates, so that they receive more money every month, and work their way in covering the principal amount they provide you as a loan.

An unsecured debt consolidation loan is comparatively safer than a secured debt consolidation loan. Though you may not get the amount of money that is needed to repay your loans, you don’t have to worry of losing your house or car in case you fail to repay the debt consolidation loan.

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