Consolidation in an economic sense, it is a combination of two or more borrowed loans or credits , in one – easier to repay. The repayment date and the terms of the contract are also consolidated.
Installments for repayment are always smaller than the combination of installments of previously repaid loans. The purpose of consolidation is to facilitate repayment of debt and reduce additional costs such as the costs of servicing separate loans.
Types of consolidation loans
Not every loan taken can be combined with another and the bank does not always give such consolidation. As you know, it is a lot easier for debtors, which is why banks also had to insure themselves. There are only two types of consolidation loans, that is, what we will get in exchange for our unpaid loans.
- cash loan – it is usually granted for a relatively short repayment period of up to 10 years at the most.
- Mortgage – is granted more willingly and for a longer repayment period. The only condition is that you must pledge your own home to secure your debt repayment.
When can you consolidate your loans?
Consolidation of loans is a service proposed by most banks, but some conditions must be met to achieve it. Above all, the debtor must have flawless creditworthiness .
The loans that it wants to consolidate had to be repaid regularly and on time. No bank will pay off loans and will not offer a lighter form of repayment if it is not sure that you will be able to repay it.
This is the most important condition to meet. However, it is not possible to hide previous arrears in repayments before the bank, as it reaches for the BIK report, which contains accurate data on persons who are in arrears in repayment of loans and advances.
Another important condition is that the loans are granted by the bank . You can not consolidate loans from non-bank companies or other institutions.
This is so uncomfortable, because checking the creditworthiness also draws attention to loans granted by parabanks, but with them you can not do anything.
While checking creditworthiness, the income, marital status, type of employment contract and possible financial security in the form of a house or car are verified. All of this is checked to ensure that the consolidation service provided by the bank will not be associated with a loss.
Another condition that must be met is that the loan we consolidate must be concluded with a bank other than the one in which we will ultimately pay it back.
The restrictions do not only apply to the time we will pay back the loan, but also the amount of the loan. Usually it oscillates around PLN 200,000, however, each bank performing this service has its own guidelines and conditions.
Advantages of loan consolidation
The consolidation involves a lot of formalities, and the conditions for granting it are quite high and absolute. Therefore, the question should be asked whether consolidation is a service that is so beneficial to the debtor, so that it is worth applying for it.
Here are some of the advantages of loan consolidation:
- the installment is reduced. This is quite obvious, because since there were several installments so far, and suddenly there is one, it is obvious that it is easier to repay and smaller. Usually, this argument is enough to convince someone to use this banking service. It is mainly aimed at people who, despite the fact that they were coping with a lot of loans, slowly began to feel their burden. Consolidation aims to reduce this burden by spreading it over time;
- it is convenient and reduces formalities. Instead of paying off various loans in many branches, we send installments to one place every month. Thanks to this, the home budget is much more transparent and understandable, and the chance that we will forget the repayment or mistake the address is slim. In addition, it should be mentioned that we already have a repayment agreement with only one bank. This reduces the formalities to the mandatory minimum;
- a consolidation loan gives you the opportunity to better manage your home budget. This is related to smaller installments and extended repayment period. It is easier to plan something with a monthly budget, because the payment of obligations is much less.
Not for every consolidation loan seems to be the best option for convenient repayment of installments. The most frequently mentioned defects of the consolidation loan are its high costs.
Although spread over time and in convenient installments, they are practically imperceptible to the debtor, the truth is that this loan is one of the most expensive services offered.
As you can guess, this is due to the fact that if banks offer a more convenient form of repayment, they must also earn from this service. In everyday life, consolidation seems to be a great solution to financial problems, but in the long run, it costs more than the loans that are included in it.
Another frequently mentioned disadvantage is a longer repayment period. This action is a logical step, taking into account that thanks to the consolidation loan we have a smaller installment, and we pay more, but it does not suit everyone.
Some people, however, prefer to pay back a larger amount for a shorter period.