Personal loans for debt consolidation represent a particular category of personal loans, granted for a specific purpose, or to gather more loans in progress in one only, so as not to be confused about the numerous repayment installments to keep in mind, and at the same time, if desired, to request and obtain additional liquidity. The process of evaluating and approving loans for debt consolidation is rather complex due to the importance of such financing, which meets the needs of the debtor and at the same time commits him to a rather long amortization process. discover together everything you need to know about mortgages and debt consolidation loans.
What is debt consolidation?
Debt consolidation is a type of personal loan that can be used when there is more than one loan in progress. Let’s take an example: let’s assume that a subject is the holder of multiple loans at the same time, such as a loan for the house, loan for the car, others for the purchase of goods and services, an eventuality that is anything but unusual. When the set of installments to be paid begins to increase dramatically, and the risk of not being able to pay off the debt on time is also growing,
an instrument such as debt consolidation loan allows you to have a lighter and more sustainable installment, in order to avoid oversights and also to have additional liquidity to meet additional unexpected expenses.
To whom the debt consolidation loan is aimed
Can use this particular type of personal loan Italian and non-EU citizens who want to bring together in a single installment all the loans in progress: they can apply for the loan consolidation debts
employees, self-employed workers and pensioners, with a different documentation to be presented according to their job position. In addition to the documentation attesting the debtor’s income situation, an identity document and the tax code are always required, while non-EU citizens must certify that they hold a valid residence permit.
Personal loans for debt consolidation: the documentation
The documentation to be submitted for personal loans for debt consolidation varies depending on your job position: while employees hired with permanent contracts are required to submit a copy of the paycheck or CUD, self-employed workers must provide the Unica model, and pensioners must submit a pension slip. For pensioners, the maximum age limit for admission to funding is usually set at 75 years, but some credit institutions raise it up to 85 years or more. In addition to tax code and copy of the identity document must be presented
the accounts for extinguishing current loans, which will be used to close the debt with the other financial institutions by paying the relevant amounts, plus any other documentation required by the institution providing the loan, such as the guarantor’s income documents. In any case it is necessary that the bank has the necessary information to be able to proceed with the early repayment of debts and thus be able to give the green light to the request for consolidation of debts.
How loans work to consolidate debts
By requesting a debt consolidation and additional liquidity loan from a bank or a finance company, it is possible to settle all current loans immediately, and at the same time to draw up a new, single personal loan contract. How do personal loans work for debt consolidation ? First of all, we bring the required documentation to the bank, and in case of a positive outcome
the same institution provides to settle the residual debt and to extinguish the loans in course of the client, and at the same time a new loan is defined that globally contains the sum of the loans previously subscribed, in order to provide the debtor with the possibility to pay a single installment lower, responding to a single creditor. The amalgamation of the various loans makes it possible to extend the duration of the amortization plan and reduce the amount of the monthly payment, and if necessary the applicant can also obtain additional liquidity, the repayment of which will always be included in the only installment to be paid every month.
Debt consolidation loan, what to evaluate?
As for all financing offers, when it comes to choosing between debt consolidation loans proposed by banks, the total burden borne by the customer must be considered, without limiting the evaluation of the only monthly payment. Therefore, before signing a loan agreement for debt consolidation it is advisable to evaluate:
- TAN (Nominal Rate), ie the interest rate, expressed as a percentage and on an annual basis, applied to the capital funded, sometimes gross of any insurance costs or costs of preliminary investigation. This index is used to calculate the amount of interest that will be paid to the institution that distributes the capital, and which added to it will determine the repayment installment.
- APR (Annual Effective Annual Rate), ie the measure, expressed in percentage terms, with two decimal places and on an annual basis, which allows to evaluate the total cost of the loan, including any accessory charges, such as costs of investigation and insurance costs. Sometimes some expenses such as insurance, if optional, can be expunged from the calculation, therefore it is necessary to analyze each item of the proposed offer from time to time.
Loans for debt consolidation, what guarantees are required?
Usually the granting of a debt consolidation loan is not subject to the presentation of collateral such as the rights of lien or mortgage on assets owned by the applicant. However, in some cases, in order to limit the risk of insolvency, credit can submit a contract to the applicant
which provides for the change of installments, or a single bill, which can guarantee a part or the entire amount paid. The most widespread form of guarantee is the signature of a third party guarantor as guarantor or co -obligor, who takes over the loan in case of insolvency of the debtor. Such guarantees may be required if the applicant for the debt consolidation loan has a recent seniority, or for a particularly large amount of the loan, or because of some past problem in repaying the loans. Assessments change on a case-by-case basis and on the basis of the institution to which it is addressed, depending on the risk profile of the transaction and the individual applicant.
Loans and debt consolidation, amounts
Based on the amounts, it is possible to summarize schematically the various types of debt consolidation loan as follows:
- Amounts less than 2500 euros : in these cases another zero-rate loan can be applied, in order to benefit from a reduction in interest.
- Amounts from 5 thousand to 10 thousand euro : in this fringe of amounts the most convenient debt consolidation occurs through the request for a personal loan to close all current loans, thanks to lower interest rates than other types of loans such as the assignment of the fifth. In some cases, a guarantor may be necessary or the signature of bills may be required.
- Amounts between 30 thousand and 50 thousand euros : when the amounts are higher the best instrument of consolidation of debts to be requested to eliminate installments is the consolidation loan, a type of loan in which the mortgage is requested on a property owned as collateral for the loan, with amortization plans lasting up to 120 months.
- Amounts between 60 thousand and 80 thousand euros : in these cases it is almost certainly a consolidation loan with the purchased property used as a guarantee. For this amount of amounts the duration can reach 180 months, but there are also solutions for the purchase of the first house and consolidation of debts where the amortization plan can extend up to 40 years.
Personal loans consolidation debts: the evaluation criteria
What are the evaluation criteria exercised by banks that offer personal loans for debt consolidation ? Each credit institution applies its own risk policy in the evaluation of requests, based on the statistical data that it possesses, the so-called credit scoring, which constitute the preferred valuation tool to keep insolvencies below a certain level. Decisive for the approval or not of a debt consolidation request
it is the level of income of the applicant to understand if the possible repayment installment is sustainable, also taking into account the installments of the other loans in progress. Finally, the creditworthiness of the applicant is of great importance, analyzed on the basis of the data provided by the Central Risks. Although the possibilities are smaller, however, it is not impossible to obtain debt consolidation loans for bad payers, protested and insolvent.
Loans consolidating bad payers debts
The accumulation of more loans over time increases the difficulty in coping with timely repayment, risking to skip one or more installments, and thus become a bad payer: the personal loan for debt consolidation is an instrument also accessible by those who he has been reported as a bad payer, has been protested or has suffered foreclosures. In case of non-payment,
the debtor is first and foremost obliged to pay the additional payment relating to default interest. Since it may have great difficulty in obtaining new loans in the future, debt consolidation is recommended by experts as a way for both those who are already known as bad payers, and for those who want to prevent or avoid this eventuality.
Debt Consolidation Loan: What happens if I do not pay?
In case of non-repayment of the debt consolidation loan, the default with regard to the credit institution is immediately triggered, which entails:
- An increase in interest due, with the application of a default
- Risk of registration of the name in the list of late payers, and reported to the credit protection bodies, the so-called Central Risk, which will share information with the entire banking system, lowering the creditworthiness of the customer with a consequent greater difficulty in obtaining credit in the future.
Furthermore, failure to promptly pay even one installment authorizes the bank to unilaterally terminate the contract, and the customer will be required to pay all expenses related to the protest as well as all charges incurred by the credit institution to recover the sums due, in addition to a possible penalty.
Debt consolidation loan: early repayment
By subscribing a personal loan for debt consolidation, it is also possible to pay off the loan earlier than the agreed term. In this case to the debtor
will be required to repay the remaining principal still due plus a penalty that by law can not exceed 1 percent of the amount financed. If not specified in the contract, the sum of the current value of all the installments not yet due at the date of early repayment shall be considered as residual capital.
It must be said that the debt consolidation loan is a financial instrument that is chosen precisely because through the early repayment of the previous or previous loans it allows to obtain another one at more favorable conditions, but it happened in the recent past that, in the face of competitiveness between banks and with the consequent offers to potential customers, some debtors have changed more than one debt consolidation from one financial institution to another, in order to enjoy more competitive rates and advantageous conditions.
How to choose the debt consolidation loan?
How to choose the best debt consolidation loan ? Is this tool always convenient? First of all, the first step is to request more estimates and examine the debt consolidation repayment plan in detail. Do not forget that there are other viable alternatives to solve your debt problems, such as the sale of a property, the collection of a life insurance policy or a pension fund, or the use of an emergency fund, carefully assessing the risks involved. with every solution, perhaps even with the help of a financial advisor. We must not underestimate that
debt consolidation is a long-term loan, and if over the course of the loan period, additional loans are required, your state of undue debt would be further worsened. Therefore the consolidation of debts is useful to ask for it when you have too many debts with high interest rates, so you can reduce debts by merging them into one installment at a lower interest rate. But we must also bear in mind that the decrease in the monthly payment and that of the interest rate applied to the consolidation of debt also increases the duration of repayment of the debt, and on balance in the long run it goes to pay more.