Are you passionate shopaholic and can’t resist the tempting-looking shop windows with figured mannequins dressed according to the latest fashion trends? Or did your washing machine break down like a car, the car started to strike and you slowly but surely multiply your loans? Then you are definitely thinking about consolidation. Sometimes it is a great solution and can help you a lot, but there are also cases where the merger ends in a fiasco. What to watch out for?
How does loan consolidation work?
Bank loans are offered to clients who simultaneously pay several different loans. In such situations, there is often an unnecessary burden on the debtor, high fees and excessive administration. The Bank will therefore pay all existing loans and provide the borrower with a new loan. Its amount is equal to the sum of current claims. So a lot of paperwork goes away and in most cases the monthly payments will also decrease.
Sanctions for early repayment
Although the amendment to the Consumer Credit Act has resulted in a reduction in the amount of penalties for early repayment of the loan, the changes concern only contracts concluded from 1 December 2016. In the case of previously negotiated loans, clients cannot benefit from the amendment introduced by the amendment. Therefore, if they want to consolidate older loans, it is possible that they will not be penalized. These will then consolidate consolidation, sometimes significantly.
Before you choose the bank you want to merge, carefully study and compare as many companies as possible. Some contracts may include a condition for maintaining a current account or establishing another related product, which may incur additional charges in the form of fees. In the final, even though consolidation itself is free, it can be very disadvantageous for you in terms of monthly costs.
Various promotions are an increasingly popular way to attract new clients. There may be a short-term interest rate reduction, a few repayments, or even a financial bonus you will receive if you transfer all loans to another bank. In some cases, this is just a bloated marketing bubble, but you can often save a lot. Still, it is a good idea not to be surprised and jump right after the first offer, which seems to be convenient, but to study all the parameters of the selected consolidation.
Risk of greater spending
Loan consolidation and a reduction in monthly installments will significantly relieve your family budget. Suddenly you will have much more money left than ever. This can be risky for many people. They will feel that they can spend more and do not think of any financial reserve. In some cases they can get to the point where they think they can handle another loan without any problems. But this is usually the way to a debt trap that can end up with a personal bankruptcy.
There is a risk of rejection by the bank
Loan consolidation is far from for everyone. The application approval process is virtually the same as for loans and mortgage loans. The applicant has to undergo a check in which the receipt of receipts, contracts for current loans, the bank will also click on the registers of debtors. If it does not appear to be sufficiently credible, it may well be that its application is rejected.
Not all types of loans are beneficial to consolidate
While almost all types of credit can be consolidated, from credit cards to car rental, there are cases where it is worthwhile to use other options to get out of the debt spiral. Typically, mergers do not pay for large loans if you have a property to stop. At that moment, the American mortgage is more suitable for you. With this you will settle your debts and pay only one loan. Another example is student loans, which usually have a very low interest rate, and if they merge with other loans, their interest rate will increase rapidly.
The main reason clients try to merge their loans is the desire to save. Anyone interested in TV spots every day is attracted to lower installments and various benefits that are not refused. That is what everyone at least a little bit of family finances can hear. However, lowering installments does not mean that you will pay less for the result. It is a cunning “optical” illusion. Most banks will increase the repayment period proportionally by reducing the installment. Therefore, it is important to carefully read the terms and conditions and only choose what is really beneficial.
Possibility of credit increase
There are a number of companies that consolidate, offer clients the opportunity to increase their credit to raise funds that can be used for anything. Rationally thinking people will not make use of this generous offer and will repay their loans before further debt. But, for example, before Christmas and in a similarly exposed period, when people, rather than by reason, are controlled by emotions, they can happily touch such an attraction without thinking about the consequences.