Consolidation loans and consolidation
A consolidation loan allows you to combine several loans into one and thus pay only one installment. If your current liabilities are putting too much strain on your household finances, consolidate them into one loan and pay a slightly lower loan installment.
Can you choose a consolidation loan without walking around the city and visiting banks? Of course, you can! In various loan services, you will not only get acquainted with the loan offers of banks but also learn what a consolidation loan is.
Consolidation loans are offered by banks as well as credit unions. They allow you to consolidate, that is, combine several loans and credits into one. In this simple and effective way, it is possible to manage only one installment, as only one obligation will be repaid.
If we also extend the loan term, such an installment can be lower by even 20-30% than the sum of all previous installments. Excessively high installments resulting from several obligations can significantly burden our household budget and strain family finances.
Where to look for consolidation loans?
You can find proposals from banks where you can inquire about such a consolidation loan on numerous loan-themed portals.
However, you can also compile a list of banks with which you can quickly contact without leaving home. You only need to send a contact form to selected banks online, and a bank representative will call you to present an offer. Of course, this is non-binding, and you do not have to decide to take it.
Each bank may consolidate different products (you should ask about this), but commonly eligible for consolidation are:
- cash loans and credits,
- installment loans,
- mortgage loans (housing loans), mortgage loans,
- credit cards, and debts in current accounts.
Some banks will also consolidate other consolidation loans and car loans.
Does a consolidation loan have any downsides?
Well, what are the downsides of consolidation loans? It’s hard to imagine that such a loan only has benefits?
A bank can definitely lower the loan installment in only one way: by extending the loan term. Although a consolidation loan is usually less interest-bearing than a cash loan, the difference may not be significant enough to be noticeable.
A significant reduction in the loan installment means we will pay considerably more interest. This is true for every loan: reducing the amount of the installment results in extending the repayment period, which affects the increase in the interest portion of the repaid capital.
Let’s also remember that at times when NBP interest rates are being lowered, and we are repaying loans with fixed interest rates, we can also save on interest payments.
Types of consolidation loans
There are two main types of consolidation loans:
- Cash consolidation loan - the maximum amount does not exceed approximately 250,000 PLN and does not include mortgage loans, housing loans, and mortgage loans, and there is no security in the form of a mortgage on real estate.
- Mortgage consolidation loan – the amount of the loan is limited to the value of the property that serves as the collateral for the loan (mortgage). This is a cheaper loan than a cash loan, covering loans, mortgage loans (plus, of course, standard credit products).
Summary of consolidation loans
Is it possible to “combine” several loans into one, so that you pay one installment? Yes, this is possible with a consolidation loan. If you are currently repaying several loans, you can “swap” them all for one (using a new loan to repay the old ones) and additionally obtain funds for any purpose.
What loans can be paid off, or consolidated? These are usually cash loans, installment loans, car loans, housing loans (when we refer to mortgage consolidation loans), but also credit cards and overdraft loans in current accounts.
What are the benefits of loan consolidation? Essentially, there are two: improving financial liquidity by reducing the amount of the installment and paying one installment to one bank. Additionally, you can also consider the improvement of creditworthiness, which enables obtaining additional cash.
Disadvantages of consolidation. It extends the loan term so that the new installment is lower than the sum of the consolidated obligations. Because this is a new loan and you are not borrowing only capital but must also repay the costs of the loan (e.g., interest, fees, insurance), it often increases the amount of your debt.
The article was prepared by Kredyty Porównywarka - a credit blog.
