We hear more and more about loan consolidation – television ads, billboards, tempting ads in magazines and on the internet. At first glance, this is a good chance to save up to thousands of dollars per month in installments. But if you don’t think about it properly, you can lose a lot.
First, let’s briefly summarize what consolidation (or unification) of loans means. Whoever has more loans must repay them all regularly, plus they have to pay account maintenance fees, pay interest and so on. The family budget is therefore more than tight.
It consolidates all your existing loans into one, so you only have one regular installment, paying only for one account, and eliminating additional costs (such as bank charges for several standing orders, several outgoing payments, and so on).
Thanks to consolidation, you will receive a lower monthly payment than you had so far – it is not a simple sum of all your previous payments. Which at first glance seems very convenient. However, all risks must be considered in advance.
Each bank has different conditions, interest, maturity. In consolidation, he pays you for all previous debts and gives you his own loan, with his own parameters and obligations.
The benefits of consolidation are indisputable and it is no advertising trick. But it only pays for someone. Therefore, it is appropriate to address several banking companies, submit their documents and ask for an indicative calculation. Then sit still, compare everything and calculate.
First of all, you will be interested in the monthly payment, which may be several thousand lower than the existing ones. But beware, this means that you will repay the loan for a much longer period of time, so you will pay much more – and may be up to tens of thousands of dollars.
Similarly, it is necessary to address the interest rate – although banks advertise advantageous interest in advertising, but these are mostly “from”. It is quite likely that you will not get the lowest rate and may be up to several percent higher. Another disadvantage is the payment of penalties for early repayment of existing loans to be consolidated. It can again be thousands of dollars.
Risk of spending
If you arrange loan consolidation, you will have much more money than ever before. For many people this is very risky – instead of saving and trying to redeem debts faster, they feel they can spend and buy what they couldn’t afford before.