Debt consolidation and home equity loans are the two main types of loans that people often use to consolidate their debts. Both types of loans can consolidate multiple loans into a single repayment. Debt consolidation loan is basically a personal loan that is taken out to consolidate all the existing debts. With a personal loan, you can borrow an amount of around $1,000 – $35,000. Some lenders can lend up to $100,000 for qualified borrowers.
Debt consolidation personal loan is for those who don’t want to put in their property as collateral. All it requires to get approved for this type of loan is your signature. It is safer as you won’t face the risk of losing your house if you lose your job and can’t make on time repayment.
To qualify for an online debt consolidation personal loan, you must have a job that provide you with a reliable income for the past few months. The longer you have been employed, the lesser the risk level the lender will see you. It is easier to get approved when you have a low debt to income ratio and a good credit score. Higher credit score can help you to receive a lower interest rate.
You can apply for a debt consolidation personal loan from an online personal loans lender or P2P lender. With online lender, the loans can get approved in less than 1 week. If you apply from a P2P lender, it can take up to 2 weeks for them to approve and release the funds. After getting approved, you will have to repay back the loan according to the repayment schedule which can last from 3 – 7 years.
On the other hand, home equity loan is a type of loan that allows you to borrow against the equity value of your house. The equity value is the home appraisal value minus the amount that you still owe on the mortgage. If you get approved, you will receive a lump sum and you will have to make repayment according to the repayment schedule.
With a home equity loan, you are putting down your house as a collateral which will be repossessed if you cannot pay back on time. The reason why it is a popular option among the homeowners is that it has low interest rate. Besides, the interest that you paid will also be deductible from your income tax.
There is a good chance to qualify for a home equity loan if you have a credit score above 600 and you own a home. The amount that you can borrow is based on your house’s equity value although some lenders put a limit at $100K. You must keep in mind that you have to maintain a balance of at least 20% after taking out the home equity loan.