Debtors with several, dozen or even dozens of obligations do not have an easy life. Unfortunately, accumulation often causes people with more outstanding debts to fall into significant financial problems that can lead to a spiral of debt.
According to the linguistic interpretation, the word consolidation should be understood as activities carried out to achieve internal consistency of some groups or structures or the exchange of several loans for one with uniform repayment terms.
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Consolidation is most often used by people who have several loans, including, for example, mortgage, loans and debit and credit cards charged. It is friendly form for people with a greater number of liabilities, in a situation where the conditions of previously paid debts are different, and the installments often exceed significantly the financial capabilities of those liable. And here banking consolidation can come to the rescue because reducing several installments can be a considerable simplification and relief for the household budget and a real guarantee of repayment of the resulting debts without falling into further financial problems.
The consolidation procedure
The loan consolidation process does not differ significantly from the usual conclusion of loan or credit agreements. The Bank also examines our creditworthiness, including our financial burden. The opinion about the borrower not only takes into account the number of credit charges but also checks the previous history in BIK and other obligations, such as the number of fees for housing, child maintenance, including any imposed alimony. Banks charge a commission when granting a consolidation loan, as is often the case with mortgage loans. This commission may differ from the amount of commission granted for “ordinary” loans because it is a lifebuoy loan, in which case banks unfortunately often use our problems to generate their own profits.
Loan consolidation traps
It should also be remembered that in the context of credit consolidation, banks apply the principle of averaging the interest rate resulting from the credits and loans we have hitherto possessed. Another feature of consolidation is its extended repayment period. Therefore, it may happen that the repayment period may be significantly longer compared to the deadlines held so far because the accumulation of liabilities causes that the total amount is a considerable burden on our ability to pay the installment and the installment on the previously agreed dates would not be possible for us to repay. In view of the above, we can face the situation that the interest rate drops eg by 2-3% compared to the repayments already held, but the payment deadline will be extended for 5-10 years.
We should also remember that with mortgage loans we may get the cost of re-valuing the property by an appraiser, notary public and entry to the mortgage and the bank will certainly charge us as borrowers with this cost.
Unfortunately, the answer to the question in the title of the article is not so simple, because the benefits of credit consolidation will always be an individual solution to a given problem of the debtor. In this situation, the best solution is to collect several offers from different banks and consult our legal and financial situation with a specialist who will definitely help us make the right decision.