Very often, we happen to incur more than one loan – whether for the repayment of previous loans, sudden expenses or thoughtful investment. If we actually have several debts, we may be tempted by a consolidation loan. Why should you consider consolidating your loan? Learn more at carfin.org.uk
What is the consolidation of loans
Consolidation consists in combining many debts into one installment, which allows us to reduce the cost of monthly liabilities. This may apply to almost all types of loans, both those taken on a credit card, loans for an apartment or cash loans . However, the fairy-tale image created by banks providing such loans may not always coincide with our expectations. How is it possible that by paying a consolidation loan, we pay less each month?
Extending the loan repayment period
Consolidation is associated with the extension of the repayment period of some loans – thanks to this, it is possible to reduce the monthly liabilities. It must be admitted that this amount may be reduced by up to 2 percentage points on a monthly basis. Although the monthly cost is lower and it seems to us that we won the lottery, in fact the costs we incur in connection with the repayment of all our debts will be higher than in the case of resignation from the consolidation loan. This is due to the fact that the longer we pay off the loan, the longer we pay interest – in the long run we have to incur additional financial liabilities. The higher costs are also generated by the fact that banks, as in the case of taking out any other loan, set a commission for its granting.
Reducing loan costs through consolidation
So we have a simple application – people who expect problems with repayment of loans taken so far should decide on a consolidation loan. If, on the other hand, we want to reduce the costs of liabilities, we may be surprised and fall into the trap. In fact, it is only helpful for people who prefer to pay it longer and pay more to lower the monthly installment. It is worth remembering that even if the hole in our budget puts us against the wall, a consolidation loan is not the only option to deal with financial problems. We can also try to get help from the bank: a grace period in loan repayment or credit holidays. If our situation is extremely difficult, we may also have a chance to agree with a bank adjusted to the state of our finances.
As you know, drowning razors are caught. It is, however, worth considering twice what our priorities are and whether our loan consolidation requirements are our requirements. If we are not convinced of this, it is better to try to get into financial trouble in a different way to avoid additional costs.