What does consolidating credits mean?
The sudden loss of income or an increase in interest rates can lead to defaulting on credit payments. One option for immediate savings is credit consolidation. How does it work?
What is a consolidated credit?
A consolidated credit is a loan that allows you to consolidate various credits you have in your hands.
As a rule, banks consolidate credits when the contracts are for mortgage loans, consumer loans, and credit cards. For example, if you have a mortgage loan, a car loan, and a credit card, you can consolidate the three.
If you consolidate credits only with consumer credits, 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, meaning a housing credit to consolidate with others, the term may be longer.
What is the purpose of consolidating credits?
The goal of consolidating credits is to pay a single installment for multiple loans. The amount you pay for all becomes lower, but the loan term is substantially extended.
If you are having difficulty paying off your loans, consolidated credit can 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 facilitates switching 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 period, you end up paying more interest on long-term loans. In other words, consolidated credit allows for immediate monthly relief but may not be as beneficial in the future.
As disadvantages of consolidated credit, one must be aware that proceeding with this credit implies first amortizing debts. This may incur costs with early repayment fees.
In the case of housing credit, this fee 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 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 can also imply legal costs related to the new credit contract (fees and stamp duty).
Consider other options before consolidated credit.
Before proceeding with a consolidated credit, consider less drastic options first. For example, if your goal is to lower the amount of your credit installments, you can talk to your bank to renegotiate conditions.
In order to lower the installment of the loan, the bank can offer you new conditions such as a discount on the spread in exchange for subscribing to other products. Let's imagine you have a spread of 1.2% on your mortgage. The bank can propose lowering the rate to 1% if you take out a credit card. This, in practice, means that you will pay less for the monthly financing.
Another solution that can provide you with a lower installment of credit is transferring the financing to another bank. You can do it with any type of credit, but it is more common with mortgage credit. If you are dissatisfied with the conditions of your credit in 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 objective is to obtain more advantageous conditions that reduce the amount you pay for credit each month.
Does it seem confusing? You can always ask for help from a credit intermediary Savings in a Minute Poupança no Minuto, 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 will accompany and advise you throughout the process, no matter what option you choose to save with your credits.