What is the Difference Between a Personal Loan and a Debt Consolidation Loan?
First published: 28 December 2020 @ 11:49 pm
Personal loan is one of the most common types of loans, which is used to make a small sum of money. The borrowers who need to buy things such as home, cars, appliances and other items may get personal loan.
How does personal loan differ from debt consolidation loan? In this article, we will discuss the difference between personal loan and debt consolidation loan.
What is the difference between a personal loan and a debt consolidation loan?
Personal loans are the same as unsecured loans. It means that there is no security the lender requires while applying for personal loans as long as there is no outstanding loan that the borrower is repaying to any other creditor.
Personal loans are usually for a specific amount e.g S$20,000 and you can only use it for personal purposes e.g buying a new car or home renovation.
Debt consolidation loans are the same as secured loans. It means that there is security the lender requires while applying for a debt consolidation loan. It is also similar to debt consolidation schemes, debt consolidation plans, etc.
Loans secured by a debt consolidation loan are usually unsecured (no security is required), but in order to reduce the risk appetite of banks or financial institutions or to mitigate the default risk of the borrower in case of unforeseen circumstances such as losing job or a medical emergency, some banks or financial institutions may require additional security (i.e., a pledge of an asset).
Debt consolidation loans are usually for a specific amount e.g S$20,000 and you can only use it for personal purposes e.g buying a new car or home renovation etc but it will be repayable on your monthly installment on your loan repayment schedule i.e easier payment terms and lower interest rates than that of personal loans from banks or financial institutions.
Need to Take Out a Loan?
The difference between personal loan and debt consolidation loan is that the former can buy things such as home, cars, appliances and other items. However, debt consolidation loan is for paying off credit card debts.
If you intend to take out a loan, it’s better to consult with a financial expert before applying for the loan.
Our blog, HandyWork, discusses not only the loan options but also provides useful information on how to pay off your debts. Check out our website to learn more.