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Credit consolidation – what is it and what does it consist of?

The financial market attracts us with interesting offers, so the more willingly we use them. Here is shopping in installments, there is a home loan and there is a holiday loan.

Everything is great until we have to give back the money or something that makes repayment difficult for us. At the time of signing the loan agreement, nobody predicts any complications in your life. However, we cannot anticipate that we will have unplanned expenses, lose our jobs, get sick or encounter another random event.

Then it may turn out that the number and total amount of loans are very burdensome for our budget. There were and is a lot of people in this situation, and credit consolidation was created with these problems in mind.

What is loan consolidation?

What is loan consolidation?

If, despite temporary financial difficulties, we are determined to continue to pay off all liabilities, loan consolidation is a very good solution. Thanks to it, we will not fall into debt unnecessarily, and at the same time previously drawn loans will be repaid.

Credit Consolidation What is it?

The main premise of this service is to sum up all the loan amounts we have and divides into installments. In practice, this means that instead of paying off several installments that we cannot afford in the current situation, we will pay back one, usually much lower. Repayment time will be longer, admittedly we have to reckon with higher interest, but thanks to that we will gain peace.

Because we can pay different liabilities, we will be interested in different options. Consolidation loans are divided into two types. The first is a cash consolidation loan, the second is a mortgage consolidation loan. We can apply for a cash consolidation loan when we need funds to pay off debts.

It is easier to get a mortgage consolidation loan, but it also involves higher costs. Often, there are not many requirements and basic certification is enough. However, a mortgage consolidation loan requires collateral real estate. Unlike the previous one, it is not granted for a short period of time, and can cover up to 30 years. However, many more requirements have to be met and it is harder to get it.

How is loan consolidation done?

How is loan consolidation done?

When we decide to consolidate, we need to become familiar with the services of individual institutions. Not all conditions will suit us, so before we make the final decision, it’s better to think about different options. Before a financial institution signs a contract with us, it will thoroughly check our financial situation, registered address and professional situation.

We will have to prepare documentation related to all loans. As with other loan agreements, we will get a repayment schedule.
We will have to wait for the decision on whether or not to grant a loan. The bank will check us carefully. It is not important that we have already been verified with previous loans.

It may turn out that we have no creditworthiness, and then there will be difficulties. If, for various reasons, we do not get consolidation in the bank, we can try to apply for it at the loan company.

What to consider when browsing offers?

What to consider when browsing offers?

Looking at the role of credit consolidation and what it is all about, low installments should be our priority. Since we are deciding to consolidate, we have trouble with the current payments, so it is important that the new installments are at a level that is not a heavy burden on the budget.

We must also reckon that the total costs of the loan will be higher than before. Each loan is associated with fees, the consolidation loan is no different. However, we can choose the option whose commission and APRC will be as low as possible.

The security that is needed is also important, as is the consequence of lack of timeliness. It may turn out, especially with a mortgage consolidation loan, that the collateral will be real estate.

Advantages and disadvantages of the solution

Advantages and disadvantages of the solution

Credit consolidation has a number of advantages, but it is not without its disadvantages. Among the biggest advantages of this solution is certainly a lower installment in relation to what we have paid so far.

There is one more benefit associated with this – instead of keeping a few deadlines, we only have one to remember. Interestingly, credit consolidation is not only attractive when we have financial difficulties. Sometimes we can get a loan on more profitable terms. For example, when interest rates are lower than when we signed previous contracts.

The consolidation loan can also be viewed from the perspective of the future. The decision to consolidate is aware and responsible, and into the future when we want to take credit again, banks will appreciate it.

What about the disadvantages then? The biggest cons of consolidation are the extension of the loan repayment time, and often the increase in costs. Lowering monthly installments is associated with higher fees. Some people mention as a disadvantage the waiting time for decisions, which usually happens at higher amounts.

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