Consolidation is a different combination, and you can talk about credit consolidation in the financial industry. It involves the combination of several smaller loans into one larger. When does such a procedure pay off and who can benefit from consolidation?
Consolidation is a good option if the cost of the new loan is less than the sum of the costs of previously repaid loan obligations. Consolidation loans are designed to combine several loans into one and reduce and organize monthly installments. The bank grants a consolidation loan so that the customer can pay off earlier obligations:
- cash loans,
- car loans,
- mortgage loans,
- credit card limits,
- limits on credit lines in a personal account,
- installment loans,
- mortgage loans.
Consolidation includes physical repayment by the bank that grants such credit of all previous liabilities. The consolidation loan may be granted as a mortgage loan, ie secured by a mortgage in the land and mortgage register, or as an unsecured cash loan. The mortgage is a solid security for the repayment of liabilities, which is why its establishment means that the bank will be willing to grant a loan with a lower interest rate compared to an unsecured cash loan.
Who is consolidation for?
Not every borrower will be able to use the consolidation mechanism. It will not be available to those borrowers who already have some delay in paying their credit obligations. You can’t equate consolidation loans with debt loans. To obtain a positive credit decision when applying for a consolidation loan, you should also have sufficient creditworthiness, understood as the ability to repay a new liability.
Is it worth it?
If the borrower has several loans and the specter of losing financial liquidity hangs over him, a consolidation loan may be the only right solution. Thanks to it, the remaining loans will be repaid and the new debt spread over a longer period, which means that installments will be lower.
Consolidation is a great procedure when the customer has expensive cash or car loans granted under conditions of higher interest rates in the country. Then the consolidation loan can reduce the total cost of the liability. It is always good to calculate the costs of a new loan and any fees associated with repayment of existing loans and loans before signing the loan agreement, and then confront them with the financial benefits that can be obtained.