Debt consolidation

Debt consolidation: what is it? How is it done? How much does it cost? Who can do it? Which banks offer it?

It's one of the most common options for people who have to pay several loan repayments each month amounting to a very high outlay.

To get some breathing space and keep up with payments without it hitting their personal finances too hard, clients go to their bank to consolidate all their loans into a single repayment.

With this guide we want to help you consolidate your debts on the best terms and without complications.

Want to pay less for your loans and debts?

One way to pay less for your debts each month is debt consolidation. It means grouping all your debts and loans into a single payment so you pay less each month.

How is debt consolidation done?

First, you must be up to date with all payments. Banks don't grant loans to clients who currently have an unpaid repayment. However small, it's a clear sign to the bank that it may have trouble collecting repayments in future.

Second, you need an income. You can't get any bank loan without a regular income. You'll also need a permanent contract with at least 3 months' service and job stability.

Bear in mind that the repayment resulting from refinancing your loans shouldn't exceed 40% of your monthly income, so you don't exceed your debt-to-income ratio.

Finally, you'll need a property to act as security for the bank in case of default. The home will be charged with the amount requested and released once the full debt has been repaid, whether through the ordinary repayments or early repayment.

The home should have no charges or, if it does, they shouldn't be very high. Bear in mind that you'll actually be applying for consolidation, in which the lender pays off your debts and secures them on your home, combining the payment into a single mortgage repayment over the agreed term and conditions.

With this system you'll pay more interest over a longer term, but you'll get a much more manageable monthly repayment.

Who can do it?

Any client with the ability to pay, financial solvency and an unencumbered property. They just need to provide all the documents to the bank: proof of their employment situation, documents for the home to be mortgaged and documents for all the loans to be consolidated.

After studying the documents, the bank will value the home to make sure it comfortably covers the debt in the event of default and court repossession.

If the outcome is positive, the bank will prepare the signing before a notary and pay off all the client's debts.

From then on the client will have a single repayment with a single lender.

How much does debt consolidation cost?

The costs arising from debt consolidation are paid by the client.

On the one hand there are the costs of repaying all existing loans early, which means paying early repayment fees and other costs. On the other there are the costs of setting up the new loan, plus insurance and other bank fees and tie-ins.

Even so, consolidating your debts is generally worthwhile when all your repayments together exceed 50% of your monthly income.

Which banks offer debt consolidation?

Debt consolidation is offered by traditional banks. Online banks still stay away from this type of product.

As a general rule, the best bank to approach is your usual one, as knowing you will make it easier for them to grant a product that is ultimately for people who are too heavily in debt.

Is it advisable to consolidate your loans?

It isn't ideal, as what you're really doing is extending the term of your loans into a single repayment, which means more costs, more fees and more interest.

But it's undoubtedly the best option for people whose monthly income is seriously eroded by the monthly repayments on their obligations and loans.

That way they get more breathing room each month to spend on housing and other needs.

Need advice? Visit our page Ongoing or contact 695033558  or the Cruzhumilladero@valoracasa.es

Juan Rosado

CEO

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