Today, many citizens pay several credit debts at the same time. Some take out new loans because they always have money at hand, and serious circumstances forced some. But the reasons may be different, but the financial burden, in any case, will be significant. In addition, having two or three loans at once, borrowers often get confused about their debts. Currently, the credit market has a service for merging cash loans, which is called “consolidation” (lainojen yhdistäminen).
What is a loan merger?
Credit consolidation is the consolidation of several cash loans from different banks into a single debt. With this procedure, the borrower joins all their loans and becomes a debtor of only one financial institution.
Combining loans allows you to make the payment of credit debt more convenient because instead of several loans, you get one. They usually consolidate cash loans when they want to simplify the repayment process or change lending terms for the better. It should be noted that the connection of credit debts and refinancing have a lot in common, but in fact, they are different processes. For example, both are reported to reduce the total cost of the loan. However, in consolidation, loans are issued in one loan, and refinancing is the receipt of borrowed funds to repay the current debt. And with the help of re-crediting, you can only pay off one loan. Of course, banks do not always agree without problems to transfer the client’s current debt to another lender, because in this case, they lose part of their profits.
Details of the Debt Connection Program
Financial institutions, as a rule, are engaged in consolidating only consumer loans provided for different purposes. The bank that agrees to join all the debts of the borrower gives him money to settle with other creditors. As a result, the total amount of the debt remains the same, but the terms of its repayment change.
Money loan pooling services are provided not only by commercial lending institutions but also by state-owned banks. At the same time, each financial institution may have individual conditions for consolidation programs. Using this procedure, the borrower can combine both collateral loan products and loans that he received without any collateral. However, loans with collateral are always more difficult to consolidate since the process of transferring the subject of collateral is quite difficult and takes a lot of time.
Advantages of consolidation:
- The ability to pay one debt instead of several. Accordingly, several monthly payments with different amounts and dates are replaced by one. If the customer does not pay through online methods, then he will have to visit one bank office (or ATM) instead of several. Of course, this is convenient.
This is also an advantage for the bank. A significant part of the overdue debt with a short payment delay occurs due to the client’s absent-mindedness and forgetfulness. And if it is easier for the client to control one payment than five, then the probability of timely payment of each next payment increases.
- The possibility of changing the loan term. If the financial burden is too heavy, one way to manage it is to increase maturity. This allows you to reduce the size of each payment. However, the extension of the term is accompanied by an increase in the total overpayment in favor of the bank. But it is easier to pay a smaller amount. In any case, this issue should be carefully considered and calculated before drawing up a new contract.
- The ability to reduce overpayments by reducing the price of the loan. As a rule, the combined loan rate is lower. In addition, if the loan had other additional payments in favor of the bank in addition to interest, they can also be canceled. For example, the loan was issued on the card. This, by the way, is the most expensive loan option. In addition to interest, it may include service fees, SMS banking fees, etc.
Disadvantages of consolidation:
In order for the consolidation to be really profitable, you need to be able to calculate all possible options and take into account all the nuances. As practice shows, not all ordinary people do this. Some people” take the word ” for the bank. Others just don’t know how to count.
Before approving a new loan, the bank carefully examines the borrower. It is quite possible that the bank will refuse the client if at least one of the available loans had overdue payments. Well, only a borrower with a good credit history can count on a low cost.
The bank will not issue the funds for the new loan to the client, but will transfer them to the creditors ‘ account to repay the previous debts. This feature of the association is attributed to the disadvantages, since the client does not receive money personally. But in fact, this is more of a plus than a minus. After all, if you give money to a client, he may not bring it to the bank and not pay off previous debts. This will increase the debt burden and aggravate the situation.
The need for negotiations with previous creditors and the preparation of relevant documents. In most cases, a certificate is required – an extract about the remaining debt on the refinanced loan.
In some cases, you will have to pay a fine for early repayment of the loan.
Additional costs of time and money associated with the collection of a package of documents for the registration of a new loan.