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Loan Consolidation: what is it?

Posted by Paul Barr

consolidation a credit is a very advantageous solution to pay off an old loan with the help of a new one. Basically, you’re asking for a new consolidation loan that you use to repay it in full on an old one. You still pay rates only for your new credit.

Obviously, consolidation makes no sense unless the new loan has a lower interest rate than the original one.

You may also be offered more favorable terms, such as a lower monthly rate, a higher total amount, or even a financial bonus. But how is this possible?

Banks have many reasons for offering these products. The most important thing is of course the fierce competition among them, by consolidation a bank can easily convince you to become its client. There are even banks that offer consolidation solutions under any circumstances, that is, they are committed to helping you repay a loan at any cost. The logic is very simple: the bank strikes in the competitors and will make a profit anyway, even if it is smaller. In addition, the institution earns extra revenue from your current account, salary card and other products.

At the same time, the bank is expanding its loan portfolio and gaining a larger market share. Any customer seeking consolidation is valuable because it has already proved to be good-payer, an extremely important aspect on the Romanian market.

For the same reasons, it is sometimes possible to get consolidation from the same bank, that is, a new credit with more favorable terms. The reason here is also very clear: the bank prefers to keep a good client even if profit falls.

What are the benefits of consolidation the client? The most obvious aspect is of course interest. Banks permanently adjust interest rates on loans, depending on the policy of the National Bank of Romania, inflation rate and other economic factors. It may happen that the average interest rate decreases significantly during the course of a loan, so it is a good idea to look for consolidation offers to help you pay less. Do not forget to take into account all the costs of the new credit, not just the annual interest itself, but also all other fees and commissions that apply.

The second important advantage is the possibility of shifting the payment over a longer period of time. Suppose you still had two years to pay for the original loan and you have a new one to pay for it. No one forces you to make a contract for the same period, you can go to the maximum that the bank allows you to do. Obviously, if you pay for example the same amount for five years instead of two for example, the monthly rate drops significantly and the credit becomes much easier to support. Beware, however, you need to know that in this way the total amount you pay to the bank is higher.

Of course, a higher amount can be renegotiated than required to pay off the original loan. In this way, not only reduce the interest you have to pay, but you also choose extra money. It looks good on all aspects, however, if the bank is willing to credit you further does not mean you have to take that money. Do not borrow more if you do not really need this money. You can still take a little extra amount, after all, you have managed to make important savings, so you deserve to go shopping or on vacation.

 

A consolidation loan is ultimately a banking product like any other and the same basic conditions are met. It is a new loan and you must be eligible for it under the conditions imposed by the bank. You will have to pass through all the steps required for approval and pay the applicable fees. Many banks offer special consolidation conditions to get you to become their client, but it is not a universally valid rule. You may have to pay commissions or analyzes fees, notary fees, insured amounts or other costs of this kind.

As it is a new credit, its value depends on the situation at that time, which has changed since the time you took the initial loan. Your earnings may have increased or decreased during this time, for example. Banking policies are no longer the same, you may be fortunate enough to relax credit conditions, or catch a moment when they become tougher. Any collateral will also be recalculated to current values ​​because the price of a land or apartment may vary substantially depending on the real estate market. You may have the surprise that the guarantee with which you borrowed the initial loan is not sufficient for consolidation .

Your payment history is important in the case of any bank credit but has a special meaning when requesting a consolidation. No bank wants to take over a bad payer or one who has delayed paying the installments, but those who paid all the money in due time receive special attention. Your history and family depend directly on the conditions you will benefit from: you might get an offer and if you had problems in the past, but the terms will be less favorable.

There are several situations where you should seriously think about a consolidation loan .

If you are the kind of well-informed man who carefully follows the economic situation in the country, there is no reason not to take advantage of any change that benefits you. In times of economic prosperity, banks have more money and interest is decreasing. Given that the average duration of a loan is long enough, it is almost impossible not to benefit from better conditions at one time, except for a major economic crisis.

consolidation also offers you an extremely useful option, consolidating your credits. If you have multiple loans from different banks, this option helps save you time and money. Close virtually all the parallel credits and start a new one, which you pay a single monthly installment without having to remember more values ​​or different maturities. You also earn valuable time, but especially you do not risk forgetting to pay a rate, any delay is reported and you sign up for the Black List at the Credit Bureau. Another big advantage of consolidation is that you pay a certain amount of fixed fees that banks charge for each credit.

If your current economic situation is much better than what you had when you requested the initial loan, consolidation is a logical option. The new credit will be calculated on the basis of today’s factors, that means you will be given much better conditions if you have a higher salary or a lower total indebtedness. Even the loan you want to close is an argument in your favor because all paid rates show that you are a trusted customer and have contributed to a better credit score.

The procedure you apply for consolidation loans depends primarily on their value. Study first offers with the help of the internet, there are also specialized comparison sites that help you. Do not take the ads or the name of the bank, it only counts the characteristics of the loan. Do not hesitate to get help from banking consultants, it does not cost you anything if you ask them to make an offer, and you get a clear idea of ​​what the consolidation is about. Each bank has specialists who are ready to help you.

Once you find an attractive loan, it’s time to apply for it, so go to the nearest bank agency. You will find out what are the minimum conditions that you have to meet and the list of necessary documents. All credits have some minimum requirements: residence in Romania, a valid identity card, an age range, a positive payment history, and a minimum of one year’s work experience, out of which more than 3 months at the current job .

If the amount you need is relatively small, things move very quickly. The bank will ask you to sign a paper by which you agree with checking in the ANAF database, which takes just a few minutes and shows your legal income. Then your situation will be questioned at the Credit Bureau. The total amount you receive depends on earnings, expenses, debt and payment history. If you do not need a lot of money, the whole procedure can be completed within minutes. For higher value loans, the process is longer and more complicated, you may need guarantees, ratings, or others to be co-guaranteed with you.

With the help of consolidation loans you can quit any other loans.

There is not a specific type that is better suited to consolidation, but you probably have the most to gain when consolidating more products into one, at a single rate. It is a good solution in any situation where you can significantly reduce the cost of monthly installments and benefit from lower interest rates.

The higher the contract value and the longer the contract, the greater the benefits you can get through the consolidation because they accumulate over time. That is why real estate or auto loans can be replaced very successfully by a new credit with a much lower interest rate. Another big advantage is that you can get rid of some restrictions imposed by the initial credit. For example, a car loan requires you to make very expensive insurance. By consolidation and early repayment of a real estate loan, you immediately become the owner of the dwelling, with all the benefits that come from here. You can sell it as needed or even use it as a guarantee for a higher credit.

The fast lending provided by the Non-Banking Financial Institutions can also be refinanced. These products usually have small amounts and durations, but you can get more at the same time. Their very high interest does not recommend them in the long run, but you can endlessly prolong them if you need money and the banks refuse you, for example, because you are not old enough to work. In this case, a consolidation loan helps you get rid of these very expensive loans and choose with extra money at a reasonable rate .

Costs are the main aspect that you need to consider when consolidation. You do not have to just compare the amount of the rates, but all the expenses involved in the loan from the grant to the reimbursement. The annual effective interest rate, which all banks are required to show, is a very useful indicator, but it does not help when comparing two credits unless they are the same amount and contractual duration. A tool that gives you a better picture of costs is the refinance calculator that many institutions make available on their site.

Finally, we must mention an important aspect that you should not neglect. Credit currency can count a lot, if you choose one in foreign currency. Do not forget that you risk incurring higher costs due to exchange fluctuations, basically cover the depreciation of the leu in your own pocket. The drama of the Romanians who took loans in Swiss francs and paid to pay 2-3 times more is a painful example in this respect. Even a 10-15% drop in the leu leads to significantly higher costs.

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