Loan consolidation is a product offered by banks to simplify and clarify the repayments of several existing loans. It is basically a merger into a single loan, which works on the principle of a one-off loan, which repays all previous loans and thus creates only one loan, which requires monthly repayment in the same and constant amount.
The benefits of loan consolidation
Consolidation of existing loans offers one indisputable advantage over repaying several at once, and that is achieving a more favorable interest rate. In practice, this means that the client will repay his loans by a significantly lower final amount. Likewise, the client will save on the costs charged for maintaining multiple loans, as well as on most other fees.
Another advantage of consolidating loans is the fact that by establishing it, it is possible to achieve significantly longer loan maturities and thus reduce the amount of monthly payments. On the other hand, this advantage logically results in a relatively unpleasant increase in the amount repaid. Just as you can extend the maturity period, you can also shorten it and thus significantly reduce the total amount you will be forced to repay. The final due date therefore depends purely on the options and choice of the client. The maximum repayment period is determined by the specific bank from which the client arranges the consolidation, but most often this period is between two and ten years. The mere merging of loans not only leads to savings at interest rates and other related costs associated with the loans,
Disadvantages of loan consolidation
The disadvantage of consolidation is then a relatively low limit on the total value of consolidated loans. It is in the order of the maximum possible amount in units of one thousand dollars. The conditions for consolidating existing loans are determined by each bank individually. However, there are specific points where the vast majority of banks agree. This includes the minimum age of the client set at 18 years. There are also cases where the maximum age of the client must not exceed 65 years.
The second common condition for the establishment itself is the ownership of at least two outstanding financial liabilities. It is therefore not possible to take advantage of the benefits offered by consolidation, such as extending the repayment period and thus reducing the amount of the monthly installment, in just one outstanding loan. To obtain this product, the client usually does not need any security, such as the liability of another person, but usually you need to prove the amount of net monthly income. Other necessary documents are two identity documents, monthly statements from the permanent account for a period of a quarter to half a year, contractual documentation for loans that the client has in interest in consolidating and in some cases another document verifying the client’s place of residence.
Before choosing a bank to consolidate loans, think carefully about what loans it wants to merge in this way. In the case of consumer loans and loans from installment companies, you will not have a consolidation problem in any bank in the country. However, there are banks that do not offer the possibility of refinancing credit cards or revolving (overdraft) loans. For some banks, the maximum number of consolidated loans is also limited, and we will also understand that banks may have a new bank account to repay consolidated loans.
How to apply?
When applying for the establishment of loan consolidation, banks usually meet the needs of those clients who have so far repaid their liabilities without any problems. Otherwise, if the client is a debtor who is having difficulty repaying at the time of the loan application, he will most likely be rejected.
In addition to simple consolidation, banks also offer consolidation of loans secured by real estate. As the name suggests, this is a loan merger in which the client guarantees the real estate he owns. This product is ideal if the client needs to consolidate large amounts in the order of tens of thousands of dollars and at the same time needs a one-time cash loan. A huge advantage in this case is a significantly lower interest rate and an extension of the maturity period up to thirty years. A huge disadvantage is then the real estate guarantee itself.