Is it worth reaching for a consolidation loan?

Consolidation loan

Consolidation loan

A consolidation loan is a bank product that serves to pay off earlier commitments. The bank chosen by the borrower allows the repayment of several existing debts, in return offering one loan, covering the amount necessary to return. The consolidation loan can be used to repay consumer, home and car loans as well as overdrafts on the borrower’s existing accounts or credit card debt.

Several loans (especially loans in cash and on credit cards ) can be converted into one – the most profitable option here is usually a mortgage. Interest on such a loan is usually a maximum of 6-9 percent. Meanwhile, the interest rate on cash loans is about 15% higher. As for the credit card – after exceeding the interest-free period, the percentage is very large – many cards reach the maximum legal limit, which is currently 24%.

Also, a client who does not own real estate can take a consolidation loan. The condition of profitability is finding a bank that offers the lowest interest rate on a loan without a mortgage (it can be 10-15%). However, here the savings will be less than for a mortgage.

Save on interest

Save on interest

So, by consolidating your loan, you can save on interest. But this is not the only advantage! Often, it is possible to spread the repayment over a longer period of time. Note here: when deciding on such a move, you should be aware that usually the amount that you will have to give back to the bank will increase compared to what would have to be paid back in a shorter repayment time.

Repayment of several loans at the same time often involves the necessity of making several transfers at a bank branch. One such transfer has a chance to cost up to PLN 5. Multiplying this amount by the number of monthly transactions and the number of months that the customer has to pay, it may turn out that the amount allocated to these fees will be significant – on the order of several hundred zlotys. Then reducing several transfers to one – what happens in the case of loan consolidation – will contribute to reducing borrower’s expenses.

However, you should exercise caution and caution when making consolidation decisions. Not everyone pays off. It is necessary to check whether the value of the property is sufficient for the bank to grant the loan in the amount needed by the client. Real estate valuation made by the bank causes additional costs for the borrower of several hundred zlotys (PLN 200-500).