What does it mean to consolidate debts?

What is a consolidated credit?

A consolidated credit is a financing that allows you to consolidate multiple credits you already have in hand.  

As a rule, banks consolidate credits when the contracts are for mortgage credit, consumer credits, and credit cards. For example, if you have a mortgage credit, a car credit, and a credit card, you can consolidate the three.

If you do a loan consolidation with only consumer loans, the maximum repayment period proposed by banks is 7 years and interest rates are higher. But if you have a property to use as collateral, in other words, a housing loan to consolidate with others, the term can be longer.

What is the purpose of consolidating credits?

The goal of consolidating credits is to make a single payment for multiple loans. The amount paid for all becomes lower, but the loan term significantly extends.  

If you are having difficulty paying off your loans, consolidated credit may be the solution to avoid missing any payments.

What are the advantages and disadvantages of consolidated credit?

In terms of advantages, the risk of default on different credits decreases, as it makes it easier to switch to paying a single installment instead of several. The probability of missing a single payment is lower.

Despite the interest rates being more attractive in the short term, by increasing the repayment term, you pay more interest on long-term loans. In other words, a consolidated loan allows for immediate monthly relief, but may not be as beneficial in the future.

As disadvantages of consolidated credit, one should still note that proceeding with this credit implies paying off debts first. This can have costs with early repayment fees.

In the case of mortgage credit, this commission can go up to 0.5% of the amortized value if it has a variable interest rate, and up to 2% if it has a fixed interest rate. For consumer loans, if the interest rate is variable, there are no penalties, but if it is fixed, it can go up to 0.5% of the amortized value, or up to 0.25% if it is the last year of the contract.

In addition, consolidating credits may also involve legal costs related to the new credit contract (fees and stamp duty).  

Consider other options before consolidated credit.

Before moving forward with a consolidated credit, consider less drastic options first. For example, if your goal is to lower the amount of credit installments, you can talk to your bank to renegotiate conditions.

In order to lower the installment of the credit, the bank can propose new conditions such as a discount on the spread in exchange for subscribing to other products. Let's say you have a 1.2% spread on your home loan. The bank can propose lowering the rate to 1% if you take out a credit card. This, in practice, means that you will end up paying less for the monthly financing.

Another solution that can provide you with a lower credit installment is the transfer of financing to another bank. You can do this with any type of credit. However, it is more common to do it with mortgage credit. That is, if you are dissatisfied with the conditions of your credit at the bank where you have contracted it, even after renegotiating, you can request proposals from other entities according to your property and outstanding capital. The goal is to obtain more advantageous conditions that reduce the amount you pay for credit every month.

Does it seem confusing? You can always ask for help from a credit intermediary at Savings in Minutes at www.poupancanominuto.com, who is available to assist you with any questions you may have. With a quick and assertive response, and through a free service, the mediator guides and advises you throughout the entire process, no matter what option you choose to save with your credits.