Between the house loan, the one for the car and the third one for household appliances, it is sometimes difficult to see clearly in its various repayments, but also to assume all of them. The consolidation of credits then allows to restructure its debts, in order to better optimize its monthly payments. But we still have to do it with care to prevent the overall cost from exploding.
Several credits in one
This operation consists of a buyback of all or part of your current loans in order to combine them into one. This way, you can adapt this unique schedule to your repayment capacity. The regrouping of your contracts can relate to any type of credits. For example, you can combine your mortgage with the consumer credit contracted to buy your new washing machine or fridge.
The principle is the same with the loan taken out to finance your car, your renovation work or even with the professional loan which allowed you to launch your company. Anything is possible, including including revolving credits and even other debts like bank overdrafts.
But if the part of your mortgage represents more than 60% of the total amount of the grouping, the new contract will be treated as a mortgage and therefore subject to the applicable rules in this area, in particular for its conclusion (10 days delay between sending of the offer and its acceptance).
Lower monthly payments, higher overall cost
The terms of the loan consolidation adapt to the situation of each borrower. When the market lends itself to it, it may simply be a buyback on more favorable terms. This is particularly interesting for those who have taken out a mortgage at a period of very high interest rates and who can, through this, benefit from a rebate on the total cost by making a repurchase at a much lower rate.
In addition, if your repayment capacity has improved, this consolidation operation can allow you to reduce the duration of your commitment, and consequently to pay less interest, in return for a higher monthly payment.
That said, the primary objective of the loan consolidation being to lighten the monthly financial burden, it is most often a question of obtaining a lower single monthly payment, by extending the duration of the new loan. If you have 3 credits in progress spread over one and three years, they could for example be replaced by a five-year contract. Downside: the total cost will increase.
Calculate its cost
The consolidation of credits is not systematically advantageous. It is therefore necessary to carry out certain checks. The first step is to determine the remaining cost of your various loans, in other words the interest still to be repaid. Then, it is necessary to evaluate that of the repurchase operation, by multiplying the amount of the proposed maturity by the number of months of the new loan and by adding the inevitable application fees applied. Be careful, prepayment indemnities for your old loans can also inflate the bill.
Finally, compare your results to see if the total cost of the consolidation is lower than that of your current credits. Be aware that this is rarely the case. Nevertheless, it will then be knowingly that you will ultimately agree to pay more over time in order to be able to loosen the financial stranglehold on your monthly repayments and thus avoid falling into a situation of over-indebtedness.