One, monthly, and above all a lower installment instead of a few. For this transparency and better control of your personal budget. Is it even possible? When analyzing the parameters of the consolidation loan, we answer – yes. Unfortunately, this is not a solution for everyone.
It seems that the spirit of prosperity has embraced the hearts and minds of consumers for good. On the wave of favorable economic conditions, we are indebted to power, and the recent financial crisis seems to be a barely audible song of the past. According to the data of the Polish Financial Supervision Authority, at the end of August 2017, the debt under consumer loans was over PLN 159 billion. This is the highest result in the history of the domestic financial market.
In this frenzy it is not difficult to lose count and fall victim to unwanted concealment. Individuals who want to sort out their financial situation and, at the same time, reduce the monthly charges, should take a closer look at the offer of consolidation loans. This is often a great way to save money and time, and often also the possibility of regaining lost financial stability.
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A consolidation loan by this reference is the easiest to define as a target loan intended for repayment of existing loans. It is important to carefully analyze the structure of your debt and decide which liabilities to combine and which to pay back on the existing conditions. There is no obligation to consolidate all loans held. You can combine payday loans.
By granting a consolidation loan, the bank “extinguishes” the previous obligations of the client in the indicated banks. It is not possible for the loan amount to be transferred directly to the borrower’s hands in the hope of settling debts. After the liabilities are combined, the client repays the debt towards a specific financial institution, servicing one, legible installment. Thanks to the extension of the financing period, it can be much lower than the sum of the existing charges. It should be remembered that the longer repayment period is inextricably linked to the increase in the total cost of the loan. However, this is not important from the perspective of a person threatened by a loss of current financial liquidity.
We have to worry about people counting on full automatism in the process of granting a consolidation loan. Despite the fact that the granting of existing commitments was usually preceded by a thorough assessment of creditworthiness, their combination requires separate verification. The bank will certainly ask the borrower to provide a number of documents. Both regarding the debtor himself confirming the identity, amount and frequency of earned income or the form of employment, as well as related to consolidated liabilities. These may include, for example, existing loan agreements, personal account statements or a list of current collateral. The unprovable credit history of the debtor is also of considerable importance.
What to pay attention to
When the desire to consolidate the loans has already gained the appropriate power, it’s time to conduct a market beauty contest. For this purpose, a credit inquiry should be submitted to several banks at the same time, each time presenting the same assumptions. The verification of proposals received from financial institutions can be supported by using the tools and rankings available in the network. When assessing the legitimacy and profitability of a venture, it is worth paying particular attention to:
- the amount of the installment after consolidation – it should be lower than the sum of previous charges, unless the combination of loans is accompanied by a drastic reduction of the financing period,
- the total amount to be repaid – the lower the better, but with a view to the extension of the financing period and a possible commission for granting a consolidation loan,
- new repayment period – the longer the lower the monthly installment amount and the higher the total loan repayment amount,
- commission for granting a loan – it may turn out that consolidation of loans will require paying an additional commission,
- Real Annual Interest Rate (APRC) – this indicator is used for quick comparison of credit offers, but it does not include some additional fees. However, this is a good parameter supporting the initial evaluation of offers,
- consequences resulting from delays in repayment of the installment – it is worth checking if in case of temporary problems the bank will not raise interest or terminate the loan agreement,
- required collateral – better conditions may require additional collateral for the loan, eg with a mortgage, and this generates additional costs associated with the valuation of the property or the need to make an entry in the land and mortgage register.
In order to confirm the above guidelines, we took a practical example on the wallpaper, illustrating how the cost of credit is shaped in the conditions of a changing interest rate and the financing period. According to the assumptions, the client has three loans, which are paid in equal installments. The statement does not include commissions for granting a consolidation loan, nor for early repayment of liabilities. The client also does not use the loan insurance.