Today, many citizens pay at the same time several credit debts. Some take new loans because they are accustomed to always have money on hand, and serious circumstances have forced someone. But the reasons may be different, but the financial burden, in any case, will be significant. In addition, having two or three loans at once, borrowers often simply get entangled in their debts. At the moment, the loan market has a merger of cash loans, which is called “consolidation”.
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Debt consolidation is a consolidation of several cash loans from different banks into one debt. With this procedure, the borrower connects all of his loans and becomes the debtor of only one financial institution.
Combining loans allows you to make the payment of credit debt more convenient because instead of several loans you get one. Consolidate cash loans usually in cases where they want to simplify the process of repayment or to change the conditions of lending for the better. It should be noted that the connection of credit debts and refinancing have much in common, but in fact, these are different processes. For example, both are resorted to in order to reduce the total cost of the loan. However, during consolidation, loans are simply issued in one loan, and refinancing is the receipt of borrowed funds to pay off current debt. And with the help of lending, you can pay only one loan. Of course, banks do not always agree to transfer the client’s current debt to another lender without any problems, because in this case, they lose part of their profits.
Details of the debt connection program
Financial organizations, as a rule, consolidate only consumer loans provided for different purposes. The bank, which agrees to combine all the debts of the borrower, for example, Sberbank, gives it funds for settlement with other creditors. As a result, the total amount of debt remains the same, but the terms of its repayment change.
Cash lending services are provided not only by commercial lending institutions but also by state banks. The conditions of consolidation programs for each financial organization may be individual. Using this procedure, the borrower can combine both collateral loan products and loans that he received without any security. However, loans with collateral are always more difficult to consolidate, since the process of transferring the subject of collateral is rather difficult and time-consuming.
Benefits of consolidation
The service to connect credit debts is very popular among borrowers because it has a lot of positive aspects. These include:
- The ability to change the amount of the monthly installment of debt repayment and other credit conditions. By combining all existing cash loans, the debtor can reduce the size of the regular payment, as well as change its type and repayment order. In particular, consolidation allows you to change the less profitable annuity payment scheme to a more optimal option – differentiated.
- More convenient and quick repayment procedure. When all current debts are connected, the borrower makes only one payment each month and only one bank. Thus, the debtor does not need to visit several lenders to make the next installment. This significantly saves the borrower’s personal time and eliminates the collection and storage of numerous documents confirming the fact of payment.
- Reducing the size of the overpayment on the loan. You can take out a loan to consolidate all other debts at a lower rate by choosing a more profitable program. Therefore, consolidation can significantly reduce the total cost of all current loans.
- The ability to streamline the payment of loans. A large number of current loans is always an increased load on the borrower’s monthly budget. In addition, it is difficult to pay several loans at the same time in terms of accounting. Debtors often forget how much, when, and in which bank they should contribute towards debt repayment. As a result, a delay in payment is formed, for which banks impose rather large fines. The combination of all cash loans allows you to return the debt correctly – without delays in monthly installments and other problems associated with the repayment of several loans at once.
Negative sides of the union
Of course, consolidation has not only advantages; this banking product also has disadvantages.
This list includes the following:
- A small number of financial institutions providing this service. There are currently few banks in the Russian credit market that consolidate third-party loans. Most often, new, newly opened organizations that do not yet have a sufficient number of clients offer to merge loans into one borrower. In addition to them, consolidation is also carried out by small credit institutions, which, as a rule, have a dubious reputation. For such lenders, the main goal is also to attract as many borrowers as possible. Taking any money loan, especially connecting several at once, is always a certain risk for the borrower. And in the case of contacting a little-known bank, the level of risk increases significantly. It is better to work with already proven large banks.
- Expenses when making a credit transaction. By consolidating all of its debts, the borrower receives a new cash loan. And the processing of any loan is a collection of the necessary documents and payment of all associated costs. This includes: processing the application, the commission for issuing borrowed funds, etc. If you consolidate loans received under the guarantee of third parties or under other collateral, the list of expenses increases. In addition, consolidation implies early repayment of current loans. And many banks impose a penalty on borrowers for early repayment of debt. That, in turn, also complements the list of expenses during consolidation.
Advice to borrowers
- Before you begin to combine credit debts, you should carefully read the contents of each loan agreement.
- It is advisable to calculate in advance the possible benefits of consolidation, taking into account all the mandatory and additional costs.
- Apply for such a service should be in a proven credit organization with a fairly good reputation.
- It should be remembered that combining loans only simplify their repayment and slightly reduces the financial burden.
- Banks often deny borrowers the opportunity to transfer their debt to another financial institution, so you first need to obtain the consent of all lenders.