This can be done through a consolidation loan. What does this financial product involve, and how does it work?
Consolidation loan – what is it and how does it work?
A consolidation loan is one of a range of financial products offered by many banks. It involves combining existing obligations into one, making it possible to repay existing loans through single monthly instalments spread over a longer period.
This solution may be beneficial when a consumer begins to have difficulty making repayments on time or anticipates financial problems in the near future. At the same time, they should have sufficient funds to make repayments on the new consolidation loan in accordance with the schedule set out in the agreement.
For consolidation to make sense and produce the expected results, the total cost of the loan must not exceed the sum of the consolidated obligations. Naturally, the offer should be individually tailored to the consumer’s means and needs. It should always be remembered that every loan is a serious obligation, and hasty decisions to take out loans may result in many problems, including the risk of falling into a so-called debt spiral.
What does the process of granting a consolidation loan look like?
The application and approval process for a consolidation loan may vary slightly depending on the institution selected. However, it operates according to principles similar to those governing other obligations granted by banks, such as a cash loan.
It is therefore necessary to assess the prospective bank customer’s creditworthiness, as well as for them to submit the appropriate documents and a completed application.
The bank will also review the applicant’s credit history by checking their individual Report at the Credit Information Bureau. It will contain information about the timeliness of repayments on past and current obligations, as well as any delays in repayment, or the lack thereof.
To streamline the entire process, it is best to prepare all the necessary documents in advance. In this case, documents relating to the loans the customer wishes to consolidate will also be required.
The process of granting a consolidation loan may look somewhat different at a non-bank institution, which is governed by the Civil Code (under the law, only banks are authorised to grant loans). It is usually more simplified, and verification of a prospective customer is carried out to a much lesser extent, for example without checking a BIK Report.
In such cases, particular caution is advisable, because the efficiency of the entire process and the seemingly attractive lack of thorough checks of prospective customers’ solvency are most often accompanied by high costs, including interest and commissions.
Who can consider taking out a consolidation loan?
Taking out a consolidation loan should be considered by people who want to organise their finances and gain greater control over their budget. This allows them to repay all the obligations they have taken on—that is, those the customer has decided to consolidate, since the choice is theirs—by paying the bank one instalment instead of several.
Another factor in favour of consolidating loans is the anticipated risk of losing control over instalment repayments. If a consumer is certain they will be able to meet the consolidation obligation on time, they may thus avoid falling into debt.
It should be remembered that a negative BIK history most often results in the refusal to grant an obligation because of insufficient creditworthiness. It is therefore worth deciding to take it out relatively quickly, for example when one instalment is overdue. In such a situation, the bank may still decide to approve the application.
Consolidation loan – choosing the best offer
Once a customer decides to take out a consolidation loan, they must still choose the best offer. A range of products of this type is available on the market, which creates both benefits and difficulties from the perspective of a prospective bank customer.
On the one hand, this phenomenon encourages banks competing for customers to offer attractive loan options. On the other hand, it makes choosing the best one more difficult. Before submitting an application, it is therefore worth seeking advice from a credit adviser or using a ranking and calculator of consolidation loans, which can be found online.
An example is the tool made available to internet users at www.bankier.pl/smart/kredyty-konsolidacyjne. It allows users to search for banks’ offers by filtering them according to the desired loan amount and repayment period. In addition, the ranking takes into account several factors that are important to a prospective borrower.
The main one is APR, or the Annual Percentage Rate. This value, expressed as a percentage, determines the total cost of the obligation over a year. When calculating the APR, factors such as the commission, interest rate, loan insurance and any other additional costs are taken into account.
The ranking also specifies the interest rate on the consolidation obligation. It may be fixed or variable, and the interest payable to the bank is calculated on its basis. In addition, the maximum loan amount, its term and the commission are taken into account. Consumers can also view the estimated amount of their monthly instalments.
It should be remembered that these are estimated parameters that help identify a potentially attractive offer. The loan repayment terms will instead be determined individually by a bank representative, tailored to the customer’s expectations and means.