There are two types of debt consolidation loan:
Depending on your financial circumstances, you can apply for an unsecured or secured debt consolidation loan.
Unsecured – where the loan isn’t secured against your home or other assets. The rate you get will depend on your credit history, your finances, and the terms and conditions of the lender.
Secured – where the amount you’ve borrowed is secured against an asset, usually your home. However, if you fall behind with payments and can’t afford to repay what you owe, you’re at risk of your home being repossessed.
Debt consolidation loans that are secured against your home are sometimes called homeowner loans.
Because you are using your property as security against the debt, the lender may be more willing to consider larger loans at lower interest rates, as well as applications from people with poorer credit histories.
Particular care should be taken when using a secured loan for debt consolidation, especially if you are consolidating currently unsecured debts against your home or other asset, as you could lose the asset if you fail to keep up with repayments.