Consolidation loans are becoming increasingly popular and we often use them. When presenting us with an offer of consolidation loans, banks usually use terms such as: consolidate and pay less. With these passwords, clients often treat consolidation as the solution to all their financial problems. Unfortunately, this does not quite work, because as it turns out, consolidation is usually more expensive than our previous commitments. Why is it like that?
Often, consolidation is treated as refinancing, but these two concepts differ primarily in that refinancing relates to one loan, while consolidation is characterized by the fact that different financial liabilities that may come from different financial institutions are combined.
Payday loan consolidation company: visit us to learn more
Simply put, payday loan consolidation via https://greendayonline.com/payday-loan-consolidation/ is just combining several payday loans into one loan. By default, the installment of such a loan will be lower than the sum of installments of existing loans. Therefore, it is a completely new loan that pays off all our previous liabilities that had different interest rates, and also different installments and payment dates.
The process of applying for loan consolidation is very similar to the one in which we take cash or car loan. The only and obvious difference is the need to document the amount of loans and borrowings that we want to consolidate. It is also worth remembering that the funds from the granted consolidation loan will not be paid to our account, but will go directly to the repayment, i.e. to the banks in which we previously incurred our obligations.
When to decide on consolidation
The use of a consolidation loan can be beneficial when the market has changed to the extent that previous commitments have been made so that the current loan terms will be more profitable for us than those set out in our previous loan agreements. We can also choose this type of loan for convenience. Especially when it comes to people who find it difficult to remember about the date and amount of repaid installments. In the case of a consolidation, all these liabilities are replaced by one installment, it is a convenient solution but also adds our obligations and financial transparency.
However, before we make the final decision on consolidation, we should always think about it in terms of which products are worth consolidation. It is not profitable to consolidate a loan for which we have only two installments to pay or a mortgage obligation for which the terms are more favorable than those for other loans.