Consolidation – what does it mean?
Consolidation means merging, fusing, strengthening. We can meet this term mostly in the field of banking. Many people who already have a loan in a bank or want to take one, have heard the proposal to consolidate all the liabilities. So what actually is this consolidation, is it profitable and who can benefit from it?
Consolidation loan – what is it?
What is a consolidation for indebted? Where can I get a consolidation loan? Such questions are most often asked by people who have more than one loan obligation and are looking for a solution on how to pay off their debts. If you also have several loans, a credit card and an overdraft, maybe you have to pay installments for your car or a new Washing machine, you know how difficult it is to manage your home budget.
After all, you can’t give up on all your current needs, and that’s why you stop paying the installments regularly.
The debt is growing, and you get worried whether you will be able to pay it back. To sum up, consolidation concerns a specific group of clients with active loans. It is worth using it when it’s more and more difficult for you to pay your debts on time. Thanks to the consolidation you will get a lower monthly installment than the sum of your previous payments in each month.
Two types of consolidation loans
There are two types of consolidation loans:
- Firstly, a mortgage consolidation loan that is granted for a long-term, usually involves a lower interest rate for higher amounts, but with the need to secure its repayment in the form of a mortgage.
- Secondly, a cash consolidation loan that you will receive for a Shorter time than the mortgage one, but for a smaller amount of money and usually with worse conditions regarding interest rates. Its advantage is that the bank doesn’t require any collaterals.
What can be repaid under consolidation loans?
Under the consolidation loan you can pay off other liabilities, such as:
- car loan,
- installment loan,
- credit card,
- overdraft facility.
What formalities to complete?
People who decide to consolidate must comply with several formalities. In addition to providing the Required documents, you must also provide proof that you own the loan collateral. This is one of the most important issues because a consolidation loan is usually granted for several decades.
The mortgage protects the bank in case of default. Banks offering a consolidation loan without a mortgage. In this case, you only need to provide the documentation regarding other loans and creditworthiness certification.
A consolidation as a solution for people with Financial problems
Sometimes several loans turn out to be too big burden for the household budget. There are various life situations, such as: job loss, illness, additional expenses. And then we notice that we cannot afford to pay our liabilities because the sum of all loan installments exceeds our financial obligations.
In such a situation, a consolidation loan can be salutary. You might get better repayment terms. Not only the interest rate is usually reduced, but also it is easy to get a reduction in the installment amount. Of course, in some cases this also involves extending the repayment period. Thanks to this, people with Financial problems can significantly facilitate their repayment, negotiate a low installment and easily pay off their liabilities. Then the fear of generating huge interest for not paying part of financial obligations and the appearance of a bailiff goes away.
A consolidation loan is a very good option for people who are not able to pay off many big installments of several loans, and at the same time want to avoid the problems associated with it. At the same time, it is a handy option for those who want to combine several loans into one just for convenience and lower interest rate.