The combination of several obligations from different banks and conversion into one loan, with one installment – in short, the main benefits of using a consolidation loan look like. It may include both cash, car, revolving and installment loans as well as credit card debt.
A consolidation loan and a debt loan are two different financial products.
However, many clients are confusing a consolidation loan, eg with a debt relief loan. Therefore, it is worth explaining the basic concepts associated with these loans.
What does a consolidation loan give you? The consolidation loan (as the name suggests) was created in order to convert several client’s credit obligations into one loan. In practice, it looks like this: the bank repays the client’s loans that the client has in several financial institutions. From that moment – the customer no longer has any loan to repay with former creditors. At the same time – the customer signs a contract for a consolidation loan . And he has to repay only one loan, which really is the sum of all his loans to former creditors.
As you can see, the total amount of money to be returned does not change. Only the installment amount and the repayment period are changed. The bank that granted the consolidation loan extends the repayment period and thus the monthly installment amount is small. However, extending the repayment period (eg up to 10 years) means that the client using the consolidation loan – will give the bank more money – compared to the person who does not use the consolidation loan. Therefore, a consolidation loan is not a cheaper solution for a client struggling with several loans. It is only a bit more convenient solution, because instead of taking care of several installments and looking after their repayment dates – only one installment is paid.
What gives a consolidation loan apart from combining several loans into one whole?
Another advantage of this loan is the fact that a low installment allows the customer to pay off his obligations and not fall into a spiral of debt. Thanks to the regular repayment of installments, the history of debt in BIK is also improving. However, one must remember that not every customer will receive a consolidation loan. Because this is a new loan and the bank will examine the creditworthiness of the potential borrower before granting it. One must also realize that the consolidation loan has nothing to do with the debt loan . Because the essence of the debt loan is the action consisting in drawing the debtor from a difficult financial situation. There are several ways to achieve this goal. But all of them are based on one principle. Namely – to write off repayment of a larger or smaller part of the loan.