MOnkeyPi

Debt consolidation involves taking one loan to clear many others. Many people do this to secure a lower interest rate or to secure a fixed interest rate. Consolidation also helps one to service only one loan. Often, consolidation involves a secured loan against an asset or assets that are used as collateral. In other times however, it can involve various unsecured loans into one unsecured loan.

When one puts up an asset as collateral for a loan, it allows him or her a lower interest rate. This is because the collateral gives the lender or the bank the legal right to take possession of the asset and sell it to recover the loan. This forced sale is called foreclosure. Collateral reduces the risk of the lender and this entitles the borrower to a lower interest rate. Read more…