As interest rates are rising, more households come under pressure to mitigate their loans and stabilize their financial situation. These, developments and other necessities have prompted innovations in the Fintech industry. The industry is changing fast and disruptions such as digital banking, cloud lending and blockchain are becoming common terms. One term reappearing frequently is loan consolidation.
A loan consolidation program is a way to have a comprehensive debt repayment plan, which may help people better manage their finances. In this case, the debtor would be taking out a new loan with a fixed interest rate that would cover/finance all the current active debts.
Loan consolidation allows one to take out one loan to pay off all the currently active ones. As most loans and mortgages have different interest rates in addition to handling and administration fees, this will lead to a lower overall interest rate than what you would pay on every individual loan.
Loan consolidation is also easier to handle since the repayment dates and payment plan information are all in one place.
As the market is saturated with companies offering loans and services, finding the best options and keeping track of the new offers is time-consuming. Online comparison services make can help reduce the time and effort required to search, compare and find the best offers. Beyond that, they offer resources on how different types of loans will function in specific situations.
However, it's important to consider one’s personal finances and previous loans before deciding whether or not to apply for one. Many ordinary people don’t have much savings and might face unexpected and large expenses in their lives, often with little to no warning.
There are both secured and unsecured loans. Unsecured loans usually have a higher interest rate as the risks to lenders are much higher. For that reason, not many people like unsecured loans, unless in a desperate situation. With flexible loans, monthly payments on the loan are made. When the agreed amount is paid, the borrower has the opportunity to take out another loan for the same amount already chosen beforehand. This is somehow similar to how credit cards work.
Personal loans can be made for a range of amounts, but typically are limited to a few tens of thousands of Euros. Like with personal loans, these are repaid in monthly instalments. A secured loan is a loan secured by collateral. The most common types of secured loans are mortgages and car loans, where your home or car is the collateral. Secured loan rates are typically lower than those offered with unsecured loans.
When the person has several small loans from different lenders, combining them into one big loan could be an option to consider. This could result in a lower monthly payment which is easier to pay and help ease the pressure for those in a worsening financial situation. In some cases, taking out a combined loan could also increase the money that is saved on interest.
In general avoiding loans - especially quick loans with a very high interest – is the best strategy. Money not earned should not also be spent. Taking out loans is only acceptable in situations where the money is used for investment in an asset or source of income which would multiply its value and assure that the loan can be paid back with interest, and additionally even result in more wealth.