Not everyone knows what a debt consolidation loan is. It is not a common loan like the classic personal loan, even though it is actually part of this great category.
The debt consolidation loan is, in fact, a loan that can be requested by a private party to replace one or more loans already being repaid.
It is, therefore, a system that allows the debtor who is paying two or more monthly installments of different loans to be able to combine debts and pay a single monthly installment. The purpose of debt consolidation is, therefore, to merge more loans so that the installment to be paid each month will be unique and possibly less than the amount the debtor is currently paying.
Debt consolidation loans are therefore loans that are tailored to extinguish all current credit lines and to request additional liquidity.
It is, therefore, a personal loan accessible by a person who already has loans in progress and is, therefore, dealing with paying two or more monthly installments. It can happen that when you have more personal loans already open the installment amounts to be paid can start to be heavier than expected. The debt consolidation loan serves precisely for this reason: it serves to lighten the debtor from paying excessively monthly installments.
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The debt consolidation loan is requested by those who already have several loans in progress and want to merge them into a single new loan from the most convenient installment.
Debt consolidation is, therefore, a way to get out of the grip of payments in which the customer could be stumbled by opening more than one loan and then finding himself paying two or more monthly installments which overall make the payment of an excessively expensive expense.
The demand for a debt consolidation loan is not so different from the classic loan. With regards to the necessary documents, it will be necessary to have an identity document, the tax code, and an income document as well as all the documents relating to the current funding practices.
It is necessary to remember that every banking institution is free to work in the way that it prefers and therefore it could have rules different from the standard ones. For example, some banks offer this financing only if the personal loans that are to be merged have been opened with a single financial company. Other banks, on the other hand, offer this service only if the open loans have been opened at their branches.
It should be emphasized that, especially if additional liquidity is required, the request may not be satisfied. The bank will assess the client’s financial status and decide, on a case-by-case basis, whether or not to approve the request that in reality is nothing more than the opening of a new personal loan.
To find the best commercial proposal on this line of credit, we advise you to make several quotes from the various financial companies. It is possible to complete this operation also online through the appropriate loan comparators.
The possibility of requesting or not additional liquidity varies according to the promotional conditions of the credit institution. The documents required for this operation are: the identity card, the tax code, an income document and all that concerns the old loans. Some banks make it possible to merge the loans that have been opened at the same bank, while others allow merging the old loans open also with different credit institutions.
Let us try to clarify what debt consolidation is with a practical example. Mr. Mario has bought a refrigerator in installments and is repaying it by paying installments of $ 80 a month. He also bought a laptop with a loan and is repaying it with installments of $ 90 a month. Mr. Mario is also paying the car loan with installments of $ 400 per month.
For Mario, the situation has become a bit heavy to sustain given that he finds himself having to pay an installment of $ 80 a month, a $ 90 and a $ 400 installment for a total of $ 570.
Mario decides to request a debt consolidation plan that will allow him, by means of a new loan, to merge all the old personal loans and also to request new liquidity.
Mario will then be able to request that the old loans be repaid, he can request $ 1,000 in cash as new liquidity and repay the whole with a monthly payment of $ 300.
In this way, Mr. Mario will find himself paying a lower monthly installment that is easier to repay and this will certainly benefit his family budget. He also has new liquidity to use as he wishes.
Is it not yet clear? Let’s see another simple example. Mr. Luigi wants to buy some new furniture and decides to buy the kitchen and the living room for his home for $ 5,000. He decides to finance the entire sum and to pay $ 150 per month. A few months later, Mr. Luigi decided to buy a new car. Its cost is $ 18,000 and Luigi concludes the deal by financing the entire amount once again, setting a monthly payment of $ 300. At the moment Mr. Luigi is paying two monthly installments, the first from $ 150 and the second from $ 300, for a total of $ 450 per month. So far so good, but at some point, Luigi and his wife have a new baby and new expenses begin to arrive.
The installments to be paid start to be too high and also a bit of liquidity would be needed to face all the imminent expenses. Debt consolidation loans are just what they do right now, Mr. Luigi. It will, therefore, be possible to extinguish previously opened loans by combining them in a single monthly installment of the lighter amount.
If at the moment Luigi pays $ 450 a month with the new debt consolidation loan it will be possible to lower the amount of the installment. For example, the new monthly installment maybe $ 200 and therefore the amount to be paid each month, being minor, will allow Luigi to live his life with more tranquility, without worrying about small unexpected expenses that, especially with a child, can to actually arrive every day.
But the convenience of debt consolidation loans does not end there, there is indeed the possibility of requesting additional liquidity. Cash can, therefore, be requested, for example, $ 1,000, in addition to the amount already provided for the merged loans. In this case, again as an example, the monthly payment to be paid for Mr. Luigi could be $ 250. Thanks to debt consolidation loans, Luigi will not only be able to pay $ 200 less per month to repay his debts but will also be able to enjoy a new personal loan of $ 1,000.
How does it work
The debt consolidation loan is used by those individuals who, after opening more loans, have realized that they are no longer able to pay all the installments with serenity and therefore prefer to opt for a new solution: a new personal loan that will close everyone the old loans by combining them into one new installment, the most convenient amount.
Furthermore, with debt consolidation it will be possible to request additional liquidity. So those who already have financing in progress and need a new personal loan can try the way of this line of credit.
What do you need to request them? Requesting a loan that takes advantage of debt consolidation is very simple. It will be necessary to present the bank with its own identity document that has legal tender (therefore not expired), the tax code (the health card will also be fine), an income document (pension slip, single model or payslip) and all the documentation concerning the old loans.
At this point it is necessary to specify that:
- Some credit institutions carry out the debt consolidation operation only if all the old loans have been opened at their institution;
- Other lenders offer the debt consolidation loan even to those who have old loans to be merged that have been opened at different banks.
Not all requests are satisfied. It must be remembered that this is a request for a new personal loan and that therefore the choice to approve or not the request rests with the bank.
When is convenient
Even in a debt consolidation plan you can find advantages and disadvantages.
Among the advantages, we find the possibility of requesting additional liquidity and therefore the possibility of requesting cash to satisfy any type of requirement. The possibility of reducing the amount of the monthly payment to be paid is obviously very advantageous.
Let’s move on to the disadvantages. If on the one hand there is a reduction in the amount of the monthly payment, on the other hand, there will be an increase in the repayment period and interest payable. If the amount to be paid each month decreases automatically, the repayment times will increase and consequently there will be an increase in the interest that will have to be paid to the credit institution.
To sum up, therefore, this credit line has advantages and disadvantages:
- Advantages: It is possible to combine the old loans and pay a new monthly payment, the amount of which may be less, even a lot, than currently paid each month by adding the amount of the various installments. It is also possible to request additional liquidity and therefore it is as if, in addition to enjoying the benefits mentioned above, a new real loan could be used;
- Disadvantages: If the installment becomes more convenient, ie by a smaller amount, the repayment period will be longer and more interest will have to be paid. It is, therefore, an option that on the one hand can be very useful because it allows you to be able to return to paying for sustainable figures with greater simplicity and that, on the other hand, will, unfortunately, lead to the payment of greater interest in the long term.
The choice of a debt consolidation loan must, therefore, be taken only after having assessed the advantages and disadvantages relating to one’s own situation and evaluating, for good, all the additional costs that would be incurred by opting for this finance offer.
The approval times are generally very short, the request is approved or denied within a few hours. In the event that additional liquidity is required, that is a further request for money as well as the amalgamation of the old debts, the waiting times could extend up to 48 working hours, the time necessary to carry out all the necessary checks and assess whether the customer is eligible for the request for a further sum of money. If satisfactory income guarantees are presented, every request will be accepted.