A consolidation loan is – basically speaking – a combination of several liabilities into one. The bank that grants us such a loan repays our debts so far, offering instead one simple and legible product. The question is, is it better?
Consolidation loan – the magic of one installment
The advantage of one monthly installment is its trouble-free service – a permanent order is enough. Of course, if you have several credits, you can also pay them back from the machine, especially when you do not pay for transfers. If we pay installments of our obligations in the bank window and a separate handling fee is added to each, it is obvious that it is better to bear it only once. Consolidation will pay off especially when, for example, there is a favorable change in the market for loan offers or when the bank offers a better interest rate on the combined loan.
What to look for?
When estimating the benefits of consolidating existing loans, it is worth paying attention to possible fees for early repayment of existing liabilities and for a commission charged by a new bank. When consolidating mortgage loans, a number of additional costs should be expected, for example notary fees, re-valuations of real estate or changes in entries in land and mortgage registers. The most frequently mentioned advantage of a consolidation loan is its lower installment. Unfortunately, it often results in extending the loan period, which ultimately means higher costs for the interest paid.
Consolidation loan – for whom?
For clients in a difficult financial situation, a consolidation loan is often an excellent solution, because a lower installment paid over a longer period of time can have a beneficial effect on the condition of the household budget. The analysis of the quoted premises shows that the profitability of this method is conventional, especially if we have no problems with timely settlement of our existing liabilities. The decision about consolidation should be preceded by precise calculations and analysis of own financial and economic situation, as it may turn out that the convenience of servicing only one installment has a high price.