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

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

Can I amortize a loan by hiring another one?

Yes, it is possible to hire a personal loan to amortize 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 repay it in that period. And if you have a very high debt ratio, the bank may not even approve your personal credit.

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

And remember that when hiring new credit to pay off another, there will be costs related to processing fees, commissions, and required insurance.

And a personal credit for the mortgage down payment?  

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

Legally, you cannot take out a personal loan to use as equity in financing the shortfall of the mortgage loan.

This is because limits have been imposed on the loan-to-value (LTV), the amount banks can lend in housing credit, in order to protect themselves from the risk of client default. Currently, banks can only finance up to 90% of the property value (the lower of acquisition and appraisal) for primary residences, and up to 80% for secondary homes.  

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

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