If done correctly, the combination of loans will clarify debt repayment and can lead to significant savings. However, it is good to remember that combining loans always means taking a new loan. For this reason, careful comparison of loan offers is extremely important.
When the loans are combined, one larger loan is taken to pay off the previous loans in one go. After that, the new loan will be repaid under the new loan terms.
What are the benefits of loan consolidation?
- You can get rid of the extra loan management costs. If you pay off more than one loan or consumer loan at the same time, the cost of servicing the loan may go unnoticed in the long run. By combining the loans, you only pay one loan for the loan management costs.
- Get clarity on payment arrangements. Repaying more than one loan at a time puts tough demands on monthly finances. Due dates and repayments are overwhelming and, in the hurry of everyday life, payments can easily be forgotten. Forgetting is in turn punished by default interest and payment reminders. Combining loans simplifies planning as there is only one due date and one installment to remember.
- You will receive lower monthly installments and interest costs. If you pay off several short-term loans at once, the mere cost of interest will cause a huge budget cut. With one bigger loan, you can get rid of high interest rates and repay the loan in smaller monthly installments. However, a lower interest rate may mean an extended payment period. This is where you should be extra careful and make sure that the new interest cost will not subtly rise above the original interest cost. However, a longer payment time will provide relief if you are experiencing temporary payment difficulties.
What to consider when combining loans?
- Economic Planning – Just take what you need. Although a combination of loans means taking a new loan, it is not intended to increase the amount of debt. For this reason, it is important to take out a new loan only to the extent that the older loans can be repaid in one go.
- The cornerstone of a successful loan consolidation is a careful payment plan. Make a careful payment plan and make sure you survive the new loan.
- Find out all the costs, not just the interest rate. When comparing loans, you should consider the total cost of loans and not just look at interest rates. Consolidated loans may also have high opening fees and other charges that should be settled before accepting a loan offer.
How can loans be combined?
Banks and private finance companies offer the opportunity to combine loans.
- Banks usually require collateral or collateral to combine loans. It is also not easy for banks to get a combined loan, banks are concerned about the borrower’s repayment ability.
- Private finance companies generally offer unsecured loan consolidation. Consolidation loans can be obtained from finance companies for really large sums. Then you should be extra careful and carefully compare the offers of different lenders.
Combine your loans if:
- You pay off several loans or loans at the same time.
- You are sure that you will be paying off your new loan repayment plan and that you do not need any more loan.
- You will find a compound loan that is cheaper in total than your current loan.
Use the credit counter to determine if you have the ability to consolidate your loans and catch significant savings. Compare consolidation loans here.