Personal Loans vs. Debt Consolidation: What’s the Difference?

Personal Loans vs. Debt Consolidation: What’s the Difference?

It can be difficult to navigate the various options for debt consolidation loans sometimes takes time until you feel at ease with the terms. It is a personal loan is simply a one-time loan that you are able to utilize to consolidate debt or for other uses. If you’re looking to consolidate debt, you must consider a variety of alternatives prior to deciding on a loan.

Personal Loan

A personal loan is a loan that a lender offers to a borrower, generally at a lower amount and without the need for an agreement for security or collateral. If, for instance, you apply for an auto loan and the lender requires that you grant it the security interest — also known as a loan which is a lien on the vehicle. If you’re taking out a personal loan to buy an automobile, the lender will not typically require security or collateral. Personal loans, as a result typically have higher rates of interest as compared to secured loans.

Debt Consolidation

If you’re planning to combine your debts to pay one installment instead of a number of payments and you need to get an additional loan and make use of it to pay off other obligations. For instance, you could apply for an equity loan for your home (which is a secured loan) and use the funds to pay off your other debts. After this has been completed then you do not have to pay the previous creditors. Instead, you must pay the lender who provided you the loan to purchase your home equity. The consolidation of debt can be beneficial in the event that the rate of the consolidation loan is lower than the interest rates of the debts you plan to settle.

Loan and Consolidation

You can take advantage of the benefits of a personal loan to consolidate debts. In the example above, if applying for a personal loan and using the funds for the payment of 2 credit card balances and consolidating the credit card debt by taking out a personal loan. However, since personal loans typically have more interest rates than secured loans they’re not the best option to consolidate loans since they will cost you more in the long term.


If you are considering taking out a personal loan to consolidate debt or to fund a different type of loan, it is important to be aware of the terms of the loan. The personal loan is still a loan, and you have to pay the loan back. Take note of the conditions of any loan agreement regarding your needs and your ability to repay the loan. If you require assistance contact a credit advisor or financial counselor within your local area.