Consolidation loan – what is it

The loan is a strictly banking product, granted on the basis of the Banking Act. Customers of banks and cooperative savings and credit unions have a wide credit offer at their disposal. There may also be a consolidation loan. What is this? How can you define it? for further clarification an elucidation on

What is a consolidation loan?

Consolidation is a concept that means combining different liabilities. Therefore, it can be said that the consolidation loan ( – check offers) combines several loans or borrowers previously taken by the borrower. First of all, it allows you to sort out your commitments. The purpose of taking a consolidation loan is also to reduce the monthly burden resulting from the repayment of principal and interest installments and to negotiate better credit terms.

Very often, banks promote their consolidation loans in such a way that they allow you to reduce your monthly installment. However, one should know that it often results not so much from the reduction of borrowing costs as from the extension of the consolidation loan repayment period.

Its scope of consolidation loan can cover various types of bank loans. In addition, in many banks it is no longer a problem that consolidation also covers loans granted in non-bank companies. However, it is always necessary to check whether the bank chosen by the customer is willing to consolidate all desired liabilities. Among them may include:

  • cash loans,
  • credit card loans,
  • loans on personal accounts,
  • installment loans,
  • car loans,
  • revolving loans,
  • non-bank cash loans,
  • housing loans, including those secured by mortgage.

Who is the consolidation loan for?

A consolidation loan works in case of financial problems of clients, but it will not always be a good solution to organize your loans and repayments. It is intended only for people who have regularly repaid their financial obligations. Therefore, it is usually not possible for a consolidation loan to be granted to debtors. Being on the “black list” of debtors or entering negative information in the Credit Information Bureau indicating no credit or loan repayment on time means that the client will be refused a consolidation loan.

He will not receive such a loan unless he is credible as a borrower and has no good credit standing. Due to the increased risk of non-payment of liabilities in the future, banks rarely or almost do not want to offer consolidation loans without creditworthiness.

Consolidation may or may not help the customer pay all debts, unless they are past due. You have to consider all the pros and cons for such a solution. It cannot be assumed that the bank will meet the expectations of its clients and will grant a consolidation loan supporting repayment of existing loans and credits. He will want to earn on the whole situation because he works on a commercial basis.

However, if we find the cheapest consolidation loan and we incurred our liabilities ourselves when high interest rates were in force in Poland, then we have a chance to negotiate better conditions in real terms.

The trap of credit consolidation can be a paradoxically lower installment compared to the sum of payments made by the borrower so far. If the consolidation loan does not have much better repayment terms than loans taken before, the lower installment results from the extension of the loan period. In turn, the longer time spent on repaying the liability is associated with a lower monthly payment, but it means an overall increase in the cost of repaying the loan to the bank.

Basically, the consolidation loan is intended for borrowers who regularly repay their loans and credits and have no overdue debts. They must have a good credit history in BIK and sufficient creditworthiness. They should also submit to the selected bank a set of documents – a loan application and contracts for loans previously taken.

When should you consider a consolidation loan?

It is worth thinking about a consolidation loan when we expect not to receive as much remuneration as in the next few months, which means a real risk of failure to pay principal and interest installments on time.

This solution will be offered to those borrowers who have lost their jobs – mainly additional work – or their primary source of income no longer brings such earnings as before. Such persons can combine all their loans into one and benefit from a lower principal and interest installment.

In general, consolidation is useful in the event of temporary financial problems. The resulting reduction in the monthly burden of repayment of loan installments means that the borrower catches the proverbial “second breath”. During this time, he can organize his finances and securely install monthly repayment installments.

Consolidation loan – cost and credit calculator

When taking out loans, it is important to know immediately what their likely costs will be and whether the borrower can afford them. The consolidation loan calculator will answer both of these questions. It will also indicate in which bank the cheapest consolidation loan is available, if it is connected to a loan comparison engine. If we want to take advantage of consolidation loans, the online calculator will definitely be useful.

It works in such a way that it indicates the lowest possible installment of a consolidation loan. However, it must provide the parameters of the liability, including its interest rate and repayment period, as well as the parameters of each consolidated credit or loan, including:

  • loan amount,
  • credit type,
  • interest,
  • repayment period.

The result of the calculations made by the consolidation loan calculator relates to the amount of the potential principal and interest installment that the customer will repay each month after choosing the consolidation of credit and loan obligations.

You can also meet the creditworthiness calculators for consolidation loans. They answer the question whether, with the current debt, the customer still has sufficient creditworthiness to take a consolidation loan.

What types of consolidation loans can have?

Basically, banks grant consolidation loans in two models:

  • as a consolidation cash loan,
  • as a consolidation mortgage.

In the case of a mortgage consolidation loan, it is necessary to establish appropriate collateral for the bank. This is a mortgage established on a residential property. If, as part of consolidation, the client also wants to combine a mortgage, then it is actually necessary to secure it by mortgage through an appropriate entry in the land and mortgage register for the bank.

The cash consolidation loan is associated with a smaller scope of formalities to be completed at the bank offering the consolidation. This is a loan without a mortgage, which is why it is usually granted for a shorter period, which increases the cost of such a liability.

The interest rate on a cash consolidation loan may be significantly higher than the interest on a mortgage consolidation loan. The bank also has higher requirements as to the customer’s creditworthiness, since it does not obtain collateral in the form of a mortgage on the established property.

If we decide to consolidate, we should compare at least a few offers of such loans and choose the one with the lowest costs, but also offers consolidation of loans and borrowings, which in its scope corresponds to the borrower’s obligations.

When we are decided on an offer, we can negotiate with the bank to lower the interest rate. Margin and commission related to the loan may be negotiated. The total principal and interest installment should be lower than previously repaid, so that consolidation turns out to be a profitable solution for the borrower.