Can I take out a personal loan to pay off another loan?

Can I take out a personal loan to pay off another loan?

Depending on the type of credit to be settled, it is possible to hire a personal loan to do so. However, there are some factors to consider so that the personal loan is approved. We explain everything in this article.

11 Aug 20233 min

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Need help with your credit portfolio? Credit intermediaries Poupança no Minuto present the best solutions, according to your needs, for free. Contact the intermediaries for help with your credits, or keep reading the article to understand how the amortization of one credit works, with the contracting of another.

Can I liquidate a loan by contracting another?

Yes, it is possible to take out a personal loan to repay another consumer or personal loan.

However, it is necessary to note that currently, the maximum term for a personal loan is 7 years. So, if you want to take out a personal loan to pay off another, try to ensure that you can repay the loan within that period.

For example, if you have a car loan with a financing term of more than 7 years, you may not be able to pay off within that period. And if you have a very high effort rate, the bank may not even approve your personal loan.

Is there a cost to pay off a loan early?

If you pay off a loan early, there will be an associated commission to pay. Depending on the type of contract, the commission can range from 0.25% to 2%.

So, you may have to pay the following for early repayment commission:

  • 0.5% of the amortized capital, in contracts with variable rate, if there is more than one year left until the contract term ends;
  • 0.25% of the refunded amount, in variable-rate credits, in the last year of the contract;
  • 2% of the redeemed capital in fixed rate contracts.

And remember that, when contracting a new loan to pay off another, you will have costs with processing fees, commissions, and required insurance.

And a personal loan for the down payment on the housing loan?

However, if the personal credit to be contracted is intended to pay the initial down payment of the mortgage, by law you cannot do it.

Legally, you cannot take out a personal loan to use as your own capital in financing the remaining amount of the mortgage.

This is because limits have been imposed on the loan-to-value (LTV), the amount that banks can lend in housing credit, in order to protect themselves from the risk of default by customers. Currently, banks can only finance up to 90% of the property value (whichever is lower between acquisition and evaluation) for primary and permanent residence properties, and up to 80% for secondary residence properties.

In other words, since this law does not allow borrowing 100% of the value of the properties, taking out two loans to pay off the value would be against the law. Because the risk of default remains.

But if personal credit is intended to settle consumer, automobile, or even housing credit installments (after being contracted), it is possible to proceed. If you are considering, seek a credit intermediary to help you for free, with doubts and with the contracting. The mediators of Poupança no Minuto handle the entire process with the banks, presenting you with the best proposals and helping you choose the most suitable one for you.


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