It is important to remember that there are two types of debt consolidation loans: secured and unsecured. Secured loans require the borrower to put up some personal asset as collateral, which can be claimed by the lender in the event of default. Unsecured loans, on the other hand, are not secured on any personal asset, implying a higher risk for the financial institution. This higher risk translates into a higher rate of interest as well to compensate the lender for the additional risk undertaken.
Thus, when lenders evaluate potential borrowers who are looking to take out a debt consolidation loan, there are four main criteria that they would use to make their decision: proof of income, credit history, financial stability and any assets or equity.