What does consolidating credit mean?
The sudden loss of income or an increase in interest rates can lead to situations of defaulting on credit payments. One option to provide immediate savings is credit consolidation. How does it work?
What is a consolidated credit?
A consolidated credit is a financing that allows you to combine various credits that you have in hand.
As a rule, banks consolidate credits when contracts are for mortgage credit, consumer credits, and credit cards. For example, if you have a mortgage, a car loan, and a credit card, you can consolidate the three.
If you do a credit consolidation only with consumer credits, the maximum term proposed by banks for reimbursement is 7 years and interest rates are higher. But if you have a property to use as collateral, meaning a housing credit to consolidate with others, the term can be longer.
What is the goal of consolidating credits?
The goal of consolidating credits is to pay a single installment for multiple loans. The amount paid for all becomes lower, but the loan term is substantially extended.
If you are having difficulty paying off your loans, consolidated credit can be a solution to prevent missing any payments.
What are the advantages and disadvantages of consolidated credit?
In terms of advantages, the risk of default on different loans decreases, since it facilitates switching to paying a single installment instead of multiple. The likelihood of missing a single payment is lower.
Despite the interest rates being more attractive in the short term, by extending the repayment period, you end up paying 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 long run.
As disadvantages of consolidated credit, you must still be aware that proceeding with this credit implies amortizing debts first. This may incur costs with early repayment fees.
In the case of housing 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 is a fixed interest rate. As for consumer credits, 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.
Furthermore, consolidating credits can still imply legal costs related to the new credit contract (notary 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 loan installment, the bank may propose new conditions such as a discount on the spread in exchange for subscribing to other products. Suppose 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 effectively means you will pay less for financing each month.
Another solution that can provide you with a lower credit installment is transferring the financing to another bank. This can be done with any type of credit, but it is more common with mortgage credit. If you are not satisfied with the conditions of your credit at the bank where you have contracted it, even after renegotiating, you can request proposals from other entities based on your property and outstanding capital. The goal is to obtain more advantageous conditions that reduce the amount you pay for credit each month.
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Seems confusing? You can always ask for help from a credit intermediary at Poupança no Minuto, available to assist you with any questions you may have. With a quick and assertive response, and through a free service, the mediator will guide and advise you throughout the entire process, regardless of the option you choose to save with your credits. 👉 Simulate your credit consolidation for free now and see how much you can save every month.