The cheapest consolidation loan is one that has the lowest total costs. Check the banks on which such a loan is available. Remember! In order to find such a loan, it is necessary to compare Total Loans and their APY.
Advantages of a consolidation loan in a bank? Undoubtedly there are several major advantages. But before we write about the pluses, it’s worth writing a minus first.
There is one: we will pay more interest on the loan, because we will pay off the loan longer.
The advantages of loan consolidation are primarily:
1+ The loan period is extended. Various bank loans and borrowings are consolidated. Each of them has a different loan period. Cash loans and loans up to 10 years, car loans similarly (however, in most banks the maximum repayment period is 8 years), and mortgage loans and mortgages are 20 years and more. In the case of credit cards and limits in ROR, contracts are usually for 1 year. All these liabilities can be consolidated into one loan.
Example: cash consolidation loan. Cash loan € 10,000 4 years, cash loan € 4,000 2 years, car loan € 6,000 5 years. The debt is 20 thousand Euro, so we take a consolidation loan of € 20,000 for 5 years.
In this case, the loan installment will be reduced by just increasing the repayment period. Cash loan will be spread over 5 years (1 year more), cash loan also, we gain 3 years. Car loan without changes.
If the mortgage loan is also a loan, then we are talking about a mortgage consolidation loan. In this case, the loan term may be matched to the length of mortgage repayment (we will pay the mortgage for another 20 years, the mortgage consolidation loan will also be 20 years or longer).
Advantages of consolidation loan. Other benefits
2+ Reducing the interest rate. A consolidation loan is usually cheaper than a cash loan or car loan. The bank may allow itself to lower interest rates in the case of cash consolidation loans, because the average amount of consolidation loan is higher than cash loans. For a bank, a better client is a person who takes more credit than a smaller one (apart from creditworthiness at the moment).
3+ Smaller installment. This is the main premise that determines the attractiveness of such a loan. A smaller installment allows to reduce the financial burden of the household budget for paying the obligation.
4+ One installment payment date. Instead of remembering a few installments, often in different banks, all you have to do is remember the one installment payment period.
5+ Increase in creditworthiness. And thus, banks can:
6+ Propose additional cash under the consolidation loan and often do so.
The cheapest mortgage consolidation loan
A mortgage consolidation loan is cheaper than a cash consolidation loan, because in the first case the loan is secured by real estate. In addition, if the mortgage loan is lower than the value of the property, for example, 100,000 will be repaid. (a flat worth € 250,000), we can apply for a consolidation loan of up to € 200,000. In addition, the mortgage consolidation loan will bear interest at least as high as the mortgage, if not lower.
As you can see, the advantages of a consolidation loan are sufficient to reflect on such an action. Most important, however, is the fact that such a loan allows you to regain financial liquidity, which you can lose through too much, the overall amount of loan installments.