Consolidation of loans is it profitable and when? Is it worth consolidating the debt resulting from several bank loans and paying only one installment?
Consolidation of loans consists in the ” combination ” of bank loans and borrowings (in the same bank or in different banks) with one loan. ” Merger “, in other words, we take out a new cash loan, which the bank repays our credit obligations. It can, however, take a cash loan and pay off the debt? Not worth it. A consolidation loan is cheaper. It is usually much lower interest than a loan or cash loan. Especially when we break up the consolidation over a long period of time.
As with any loan, also in the case of consolidation loans, you must have adequate creditworthiness (+ creditworthiness) to get such a loan.
Usually a consolidation loan has a lower interest rate than a comparable cash loan in the same bank. This is crucial for a long loan period, because even a small difference in the nominal interest rate will be visible in the total interest paid on the loan.
Consolidation is a very wide spectrum of financial products that can be “combined” into one loan. In addition to loans and cash loans, these are installment loans, car loans, mortgage loans as well as debts on bank accounts and credit cards.
What products we consolidate, but it depends on the specific offer of the bank. What can we ask for by sending a contact form to the bank. Reducing the overall loan installment is another plus consolidation. And it should be remembered that this is what the consolidation loan is all about.
1 credit – 1 installment – 1 payment period
The most important thing is that the new installment, by extending the loan period and lower interest rate, should be smaller than the amount of installment that we have paid so far.
Does a consolidation loan have cons? Yes, as with any loan.
The main minus : we will pay more for a loan than if we were to pay off loans and loans separately. Why? Because, as we wrote above, the reduction of the loan installment is possible mainly by extending the loan period. Therefore, we will pay more interest for the loan.
The second minus of the consolidation loan is payments related to the new loan: commission, other fees (eg administrative, for examining the application, etc.), insurance. But all these additional credit costs, we can always negotiate with the bank. That is why it is so important to compare consolidation loans and know the basic parameters of the loan.
Third minus? Perhaps you will have to pay a commission for early closing of old credits and loans. This should already be checked in the provisions of the contract.
A fourth minus , which many people do not treat as a minus, but even as … plus, there is additional cash. Banks as part of such a consolidation loan offer additional cash because we increase our creditworthiness. A consolidation loan is for the purpose of regaining financial liquidity and not to additionally get into debt. One acceptable plus for extra cash is the case when we have non-bank liabilities and we also want to pay them back.
Where the cheapest. If we want credit costs, when comparing loans , pay attention to the total cost of the loan and its APY. This allows us to make a better choice and simply choose a cheaper loan. We will find the offers of consolidation loans below.
The lower loan installment is also a smaller burden for the household budget, and the consolidation loan allows you to regain financial liquidity. This may be the beginning of the sanitation of home finances, the assumption of which should be limiting household expenses, not spending new loans and learning to save.