Banks – contrary to popular opinion – offer many solutions that prove to be helpful when the debt is really considerable. They help to get out of debt. It must be remembered that banks also want their clients to pay their debt. Among the proposals of banks, which can be used by people with more than one loan, there is so-called consolidation. What is a consolidation loan? Why is it worth considering taking it?

What is a consolidation loan?

What is a consolidation loan?

Consolidation is a specific type of loan. Money that comes from it rather does not go directly to the borrower. Instead, they hit the creditors’ account, that is banks in which the borrower had loans. As a result, the existing debts are replaced by new ones. So where are the benefits?

A consolidation loan means that only one installment is payable. Therefore, there is no risk that for too many commitments we will forget about some installment, which will result in charging penal interest and sending a message to the bank. At the same time, the most common is that the amount of the installment to be paid is lower than the sum of the existing liabilities. This makes us have more money per month. We pay less to the bank. For many people it is a really great situation. Does this mean that the consolidation loan is an ideal solution? Of course not.

The longer lending period means that interest is also higher, which we transfer to the bank together with the amount borrowed. As a result, the loan costs us more. This is the most important defect in consolidation loans. Banks are often tempted by consolidation. However, when we look closely at the offer, it turns out that it is not so attractive at all. This usually happens in the case of various promotions, which are not lacking in banks today. In fact, they are not so beneficial.

Before we decide on a consolidation loan, we should think about it very carefully. If there is a chance to cope with the repayment of existing liabilities, it is worth postponing the consolidation loan.