Consolidating loans: what is it?

Consolidating loans: what is it?

Consolidating loans are extremely popular in the West, has not yet gained widespread in Russia. The reason for this phenomenon is simple: despite the growth in lending to individuals, their, the number of borrowers who use credit programs of several banks simultaneously, yet not very large, and the number of those who would like to simplify the procedure of payments due to a slight increase in the amount and the less. However, even today, some banks say that the amount granted to them as a unified credit amount to about 30% of the total loans granted to individuals.

What is consolidating loan

Imagine that you have taken a small loan for the purchase of household appliances in one bank loan to buy a new car and used the second mortgage program in the third. Around the same services except for your wife took advantage of the mortgage. The outcome is obvious - the five loans, the five interest rates, five banks and five monthly payments to be made in full accordance with the scheme of redemption.

In such a situation would be quite natural desire of the borrower to reduce these loans into one and repay the debt in the nearest bank branch.

The most pleasant thing in such a situation, that such credit union is indeed possible. Today, virtually all banks have the developments that allow them to "sell" or "buy" any other debtors of the bank (banks) and combine all the loans into one. This procedure is called refinancing or consolidation loans. Several years ago, such services were only medium and large enterprises, but today, clients, individuals are also willing to resort to the grouping of several loans into one.

Of course, the process of consolidation loans is very, very complicated and its implementation requires considerable labor costs of the bank employees, which in turn affects the cost of services. However, experience has shown that the time saved by the independent calculations and visits to various banks to fully compensate for the cost of obtaining such a loan.

It should be noted that consolidating loans are not a panacea, in fact: to resort to their use should be very, very carefully. The fact is that buying your debt, and summing them, the lending bank or sums, at least, increases the risks that must be compensated. Such compensation is fraught with the introduction of collateral and increase the amount of debt, but that if one of the loans already secured (mortgage or car loan), the pledge applies to the whole amount. However, the reverse side of the situation may be some reduction in interest rates on particular line items, combined with less expendable. This in turn increases the attractiveness of the consolidated loan for those who can guarantee the return of large sums.