1. The Legitimacy of the Company



Loan consolidation has become a hot business on-line. Like any growing trend, it has attracted a lot of attention from people who may not have your best interests in mind. So the first thing you might want to do is check out the company's web site thoroughly. Does the company provide complete contact information - phone, email, and physical address? Be wary of companies that don't volunteer this information and simply provide a contact form. Pick up the phone and give the company a call. Ask questions like how long the company has been in business, where it is located, and who the originators of the loans are. Also ask for referrals. If nobody answers the phone to begin with, go somewhere else. Also check with the Better Business Bureau to see if there are any complaints against the company. Be wary of companies that ask for a substantial fee to begin the process. The company should make its money from interest on the loan that you pay back, and any fees should be charged after the process is started, not before.

2. The Terms of the Loan

Make sure you are getting a loan that pays off all of your outstanding debt (or all of the debt that you wish to consolidate) at a rate that will reduce your monthly payment. Also make sure that there is no balloon payment on the loan, which is the paying back of a large amount of principle in a single payment at the end of the loan. This kind of loan will result in smaller payments but a major expense to worry about some years in the future. It is better to get a loan with equal payments throughout, so that when the last payment is made, the debt is repaid.

3. Required Security

If you have a strong credit rating, then it probably won't be hard for you to get an unsecured consolidation loan. This is what you want. However, it may be necessary for you to secure the loan. This generally involves using your home as collateral. If you are extremely confident that you will be able to handle the new loan payment, then this option is probably fine. However, there is a danger. You are likely trading unsecured debt for secured debt. In other words, where once your creditors could not take your "stuff" for non-payment, now your new creditor has the right to take your home. So you have much more at risk with a secured loan. All else being equal, if you have a choice between a secured loan and an unsecured loan, you should choose the unsecured loan. In reality, all things are seldom equal. If the loan consolidation company you are talking to demands your home as security, then it would probably be a good idea to shop around. You may find that you can get a better rate with a secured loan, in which case you have to balance the risk of losing your home with the comfort of a lower payment. Choose wisely.

If you carefully take the above three factors into consideration when selecting a loan consolidation company, you will be more likely to choose one that fits your needs.