Current interest rates have been particularly favorable for the borrower in recent years. So it is no wonder that the merging of loans is going strong today. Although this form of credit is becoming increasingly popular, there are still many people who do not know exactly what such a credit rescheduling actually entails.
What does merging loans entail?
The merging of loans is also referred to as the rescheduling or centralization of current loans. This is a financial operation that consists of bundling all current accounts into a single credit.
Now let’s try to explain this a little easier …
Many families have different loans, since they need loans to finance certain projects, such as a house, a car, etc. Repaying several loans at different times each month is therefore no exception.
Unfortunately, it can quickly become a complex matter: keeping an overview of the various amounts to be repaid and the different dates on which the amounts must be paid is not always easy and increases the risk of default, with all the associated risks (such as the payment of a default interest). Merging the various loans facilitates not only the management of your loans, but also your budget.
From a financial point of view, it is also interesting to combine the various loans, since you only have to pay one monthly installment instead of several repayments. This amount is sometimes considerably lower than the sum of the various monthly installments that you had to repay before.
Merging loans is interesting for everyone, but especially for people with a heavy debt burden. Due to unforeseen circumstances – such as a job loss, divorce, illness, etc. – you can sometimes end up in a precarious financial situation by incurring additional debts, possible payment arrears, etc.
Merging credits can cause your debt to fall. For example, you can reduce your monthly repayment by extending the term of your credit. Sometimes it is also possible to obtain a better interest rate if you use this opportunity to negotiate with the financial institution. This is of course interesting as your monthly repayment then lowers. However, remember that the interest rate must fall by a minimum of 1% before this is an interesting operation, since early repayment always entails costs.
- Enables better management: it is easier to repay a single loan than different loans.
- Sometimes you can lower the total amount of your monthly repayment if you renegotiate your interest rate.
- Your monthly repayment decreases if you extend the term of your loan.
- Extending the duration of your loan also increases the total cost of your credit: you will have to pay more interest, since you will have to pay longer.
- New costs (for example, file costs) since you change financial institution.
- More expensive insurance. Let us take the example of the outstanding balance insurance. You will probably have to pay more since you are older in renegotiating your loan.
In short: combining loans makes it possible for you to spread your debts over time and to manage your budget more easily in the present.