If you find yourself having to make too many payments a month, you might consider getting a consolidation loan.

Used for a variety of purposes, a consolidation loan can take multiple loans (such as personal loans and auto loans) and combine them into a single payment, or it can provide money to pay off a variety of bills and debts and consolidate them into a lower monthly payment.

People of all credit levels can apply for a consolidation loan for different reasons, and the loans can be secured or unsecured.

Secured loans and unsecured loans

In most cases, a consolidation loan is a secured loan meaning that some property of value is used as collateral, or a guarantee that the loan will be repaid.

If the borrower doesn't repay the loan, then the lender can legally take possession of the property (most often an automobile or real estate) and sell it to regain the money that they lost through the loan.

Occasionally, though, a consolidation loan will be unsecured meaning that no collateral is needed. If a consolidation loan is unsecured, then it is usually being used to consolidate other loans held at the same bank or finance company and is being issued to a regular customer or to a customer with a very good credit rating.

On very rare occasions, loans that are being used to consolidate debts may be unsecured, though they are often for much smaller amounts than typical loans of this type.

Unsecured loans are charged a higher interest rate than secured loans due to the lack of collateral as a guarantee of repayment.

Shopping around for a consolidation loan

Unless a consolidation loan is being used to combine other loans at a single bank or finance company (or unless the borrower has a lot of business with a particular bank or lender), it's a good idea to shop and compare loan rates among several institutions to find the best interest rates and lending terms.

When comparing the rates and terms of several lenders, you should always use the same collateral (if any is being used) and request the same amount at each so that you can get quotes for the same loan at the different locations.

Go to the lenders that you've had positive experiences with in the past first, as they're likely to give you the best rates, and then check a few banks or finance companies that you've never dealt with to see if their rates are any better.

Once you've obtained several quotes, compare both the interest rates and the repayment terms among all of them you'll be looking for the lowest interest rate and the most flexible terms.

When you find the lowest interest rate with terms that you like, go back to that lender and apply for your loan, making sure that you get the same rate and terms that you were quoted.

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