The debt consolidation loan is a financial product that allows you to unify the payments of multiple loans in a single monthly installment by establishing a single deadline. The advantage is that of having to make a single payment with greater convenience and manageability of the repayment of the credit. With this type of loan it is possible to reduce the monthly installment, obtain lower interest rates than previous installments and also increase the loan amortization plan (increase the repayment time of the loan in progress).
Debt consolidation: we may be able to help
The debt consolidation loan is also known as refinancing, with which it is possible to combine in one installment also the loan installments of different types, obtaining a lower monthly payment than the previous one and the possibility of requesting additional liquidity to incur additional expenses. The debt consolidation loan belongs to the category of personal loans and can be requested by the public, state or retired employees through the assignment of one-fifth of the salary or the loan payment delegation solution.
The debt consolidation loan solution allows you to order the management of your loan installments and to alleviate situations of economic difficulty: this type of loan allows you to reduce the monthly payment, increase the loan amortization plan and request liquidity in case of economic narrowness.
HOW and WHAT is obtained with the debt consolidation loan
The debt consolidation loan solution is ideal for obtaining a single monthly payment with a single maturity against different postal bills to be paid. The preliminary process to accept the request for this type of loan includes the evaluation of all the contracts stipulated for the different loans and the extinguishing documents attesting the residual amount to be paid. Only through these documents, it is possible to verify the feasibility of extinguishing all the loans and enclosing them in a single installment.
In summary, a person who has more than two ongoing loans also from different credit institutions, with installments with different expiry terms, can turn to another loan to pay off the entire sum paid out by all the financial companies. In this way, it will be able to pay a single monthly installment, with a single maturity, to a single company, extinguishing at once all the loans contracted and deciding to pay them with one installment. To give an example we can venture the hypothesis of a creditor with:
- monthly payment of 75 USD with a 15th deadline each month for the purchase of a notebook (12-month loan);
- monthly payment of 250 USD with a 10-month maturity for the purchase of a car (3-year loan);
- monthly payment of 100 USD with expiration 2 of each month for the purchase of an LCD (18-month loan).
The three loans amount to 425 USD per month with different maturities: the debt consolidation loan makes it possible to consolidate the residual credit of each loan to reformulate a monthly installment with a precise duration, different from 12/18 months or 3 years). If for example, when choosing the debt consolidation solution, I remain:
- 4 months for the notebook equal to 300 USD;
- 10 months for the car equal to 2,500 USD;
- 8 months for the LCD equal to 800 USD;
The residual credit is equal to 3,600 USD which must be distributed again in a single installment, with a single maturity and an amortization plan based on the customer’s needs. The repayment plan can last even longer than 3 years (the longest duration of the previous loans was 3 years of the car loan). To understand better, look at the summary table:
|MONTHLY INSTALLMENT||DURATION OF FINANCING||REMAINING CREDIT||TOTAL AMOUNT RATE||REMAINING CREDIT TO DIVIDE IN ONLY ONE MONTHLY installment|
|75 USD||12 MONTHS||4 MONTHS = 300 USD||425 USD||
3,600 USD equal to 10 monthly installments of 360 USD
|250 USD||3 YEARS||10 MONTHS = 2,500 USD|
|100 USD||18 MONTHS||8 MONTHS = 800 USD|
The requirements for access to the debt consolidation loan: GUARANTEES
In general, no special guarantees are required to access the debt consolidation loan, such as the possession of a property on which it is possible to apply a mortgage, land or property with a value equal to or greater than the credit, but it is always possible that some banking institutions require the stipulation of a contract with repayment of installments or a single bill, which covers a part of the entire capital granted. The guarantee most required is still the guarantor or a third guarantor, who becomes directly responsible for the correct resolution of the loan.
There are also requirements that increase the chances of accepting the loan for debt consolidation as they constitute real guarantees for credit institutions for the regular repayment of the paid-up capital. Generally speaking, it can be said that primarily every banking institution checks the status of the loan applicant, the regularity of his payments if he had already requested a loan at his office or in others, and his initial income, even if he belongs to the category of worker without payroll, a factor of primary importance in the regular repayment of the loan.
The assessment of the applicant’s status is not only linked to the verification of his income and to the actual possibility of settling the loan on a regular basis but also to the verification of further ongoing loans that the applicant, is possible, does not intend to convey in the single installment. Through these assessments, it is possible to estimate the risk level of each applicant of a loan that has no moral value and is not linked to discrimination of any kind. The positive or negative outcome of the acceptance of the loan is exclusively linked to the protection of the economic assets of the bank.
WHAT TO EVALUATE before choosing the debt consolidation loan
On the market, there are numerous banks that offer their own debt consolidation loan solution but not all the proposals are identical and for this, it is necessary to have some important preventive information to evaluate the most suitable loan to solve the economic problems for which we have decided to unify all the loans in one installment.
ATTENTION: there is to say that the consolidation of debts is a real loan and as such, as we have already seen before, is subject to the criteria of access and evaluation of a traditional loan; for the same reason it is also subject to initial costs, additional costs and additional charges to be taken into account in the initial contractual phase. These factors are relevant for the purpose of assessing the amount of the final monthly installment, not to be evaluated in its initial sum, which is almost always lower than the one we will have paid with all the loans in progress, but it is necessary to count the total sum of the opening of the loan, including the interest rate that will be applied to this new loan.
For those not familiar with this type of paperwork or for those approaching a loan request for the first time, it is not difficult to assess the convenience of the debt consolidation loan solution if it is evaluated :
- the TAN, a value that represents the annual nominal rate, or the interest rate of the financed capital, calculated as a percentage, over a year. The Tan is the percentage that is used to calculate the share of interest due to the credit institution based on the disbursed capital and the duration of the loan. This sum is added to the financed capital and constitutes the total amount to be repaid in installments in monthly installments (those that we will then pay);
- the APR, a value that represents the total cost of the loan, expressed as a percentage with two decimal places, on an annual basis. The percentage value includes the preliminary, insurance and other ancillary costs for the loan applicant.
How to choose the APR: tips to avoid mistakes
The APR is a more significant value than the TAN as it constitutes the total cost of the required capital. Consider that:
- the APR is reduced as the duration of the loan amortization plan increases (the more time your loan is extended the more the APR is REDUCED);
- the APR is reduced as the amount of capital required increases (the sum requested is GREATER, the APR is lower).
Debt consolidation for employees with committed pay slips
The debt consolidation loan is accessible to all workers who are in the situation of having more loans in progress and realize that they have difficulties in paying the installments regularly. This type of worker usually has between 30 and 50% of the salary involved in the payment of installments which, for the request of any personal loan, constitutes a limiting factor or, in most cases, exclusion.
The debt consolidation loan is the ideal solution to obtain a new loan that unites all the installments, automatically extinguishing them: the only thing to evaluate is that the credit institute proposes an installment solution with favorable and lower interest rates than the loans already in progress. Furthermore, if with the previous loans in progress there were difficulties in the regular payment of monthly installments (and this is also the reason why you choose the loan to consolidate assets) it is necessary to look for a credit agency that is also able to extend the duration of the contract and reduce the installment.
ATTENTION: consider that if you have recently signed your financing, you have also invested in administrative sums, ancillary and opening fees, stamp duties, etc. which you will lose and repay in full with the opening of the new debt consolidation loan.
The informative video: debt consolidation
To better understand the features, the advantages and who should apply for the debt consolidation loan, it is advisable to also view the following video which in a few minutes explains in a simple way and summarizes the fundamental points of this form of financing in progressive diffusion: