Debt consolidation is one of the basic financial tools that makes it easier for people with several loans to get out of debt. http://sauvonslesrased.org for an assessment
Nowadays, taking out housing loans to pay bills is on the agenda. It often happens that at some point we cease to control all loans, and various interest rates and repayment terms may overwhelm us.
As a result, it is very easy to make a mistake, and repaying loans individually generates additional costs.
Credit consolidation is the best way to make it easier for you to repay all your loans. Let’s check exactly what it is and when to use this service.
What exactly is debt consolidation?
Consolidation is simply a combination of several different loan obligations into one. This can lead to a significant relief of our household budget.
The consolidation of loans consists in incurring another, new loan. With its help, other liabilities are repaid, such as, for example, cash loans, consumer loans , loans without a car and a flat, as well as debts from a credit card.
However, what is the point of taking an additional loan to repay the previous ones? Well, it turns out that the total installment of the consolidation loan is usually lower than the sum of other loans taken.
The repayment period of the consolidation loan is selected so that the monthly installments are easier to repay by the borrower. However, when you decide to consolidate your debts, you should carefully analyze all offers and even ask a credit advisor for help.
Banks offer us two types of loan consolidation. The first of these is a mortgage consolidation loan. It allows you to combine loans for a very high sum and longer crediting time.
A mortgage loan can significantly reduce the actual interest rate, but it must be secured by a real estate, the value of which is taken into account when analyzing the loan amount.
The second type is a cash consolidation loan. It is offered for much lower amounts, and the loan period is shorter than in the case of mortgage loans. Use it to consolidate only smaller loans, but you can use it to reduce the total loan amount by a few percent.
Pros and cons of consolidation loans.
- Better terms of the contract – incurring a consolidation loan is a great idea if the market has changed from the moment the previous liabilities were made, that after the loans have been combined, the terms of repayment of one, aggregate loan will be much better than those in the agreements signed for individual loans.
- Easier control of deadlines and repayments – when we take out many loans, we can finally lose control over all dates and amounts of payments. It is very easy then to miss one of the loans and, as a result, increase your liabilities. When applying a consolidation loan, we will only have to pay one monthly payment (depending on the terms of the loan, however, most often it is just one installment per month
- Reducing the amount of monthly installment – If you download too many credits, their amount may eventually exceed our repayment options. If we stop dealing with monthly obligations, the consolidation loan can help us lower the amount we have to pay back, which will make it easier for us to control our finances.
- Increasing the total cost of credit – Unfortunately, there is nothing for free. As part of the consolidation, we will reduce the amount of installments, but eventually we will pay more than if we were to repay the loans individually.
- Unclear terms of the contract – It is sometimes difficult to obtain the exact terms of the consolidation loan. Despite the fact that banks offer their calculators, it’s hard to find in them all the additional fees that we have to pay when deciding to consolidate loans. We do not have to decide on most services, but sometimes it will be difficult to consolidate without buying additional insurance.
- Longer repayment time = higher risk – Extending the loan repayment time increases the risk of us losing financial liquidity, which may have serious consequences.