When is a Debt Consolidation Loan the Best Solution?

What is debt consolidation?

What is debt consolidation?

Debt consolidation or merging loans is a way of refinancing your existing debts by replacing multiple loans with one loan. It allows you to convert various short-term debts into one long-term loan. This will of course take longer before you have paid off your debts, but with a lower monthly repayment. A loan for debt consolidation therefore makes it possible to reduce the excessive monthly debt.

Below is an example of debt consolidation:

             
Loans Capital amount (euros) APR (percentage) Duration time (months) Monthly repayment (euros) Total interest during the term of the loan (euros) Total repayments during the term of the loan (euros)
Car loan 15000 1.49 60 259.51 570.6 15570.6
Renovation loan 7500 2.95 42 188.03 397.26 7897.26
Personal loan 6000 6.50 30 216.72 501.6 6501.6
Total 28500 . . 664.26 1469.46 2,996.46
Loan for debt consolidation 28500 10 60 600 7471 35971

As you can see in the table, the monthly repayment amount has fallen from € 664 to € 600, but the average duration of the loan is longer. After all, the duration has increased from 30-60 months to 60 months. For this reason, the interest rate of the new loan is often higher than that of the old loans. In our example, the total amount of interest has risen from € 1,469 to € 7,471. It is therefore important that you make a good calculation to see what a feasible monthly repayment is for you before you opt for a loan for debt consolidation.

Who is a debt consolidation loan for?

Who is a debt consolidation loan for?

If the amount of your monthly payments becomes too high, this solution can help you. So if you can no longer pay your monthly repayments or you risk getting into that situation, you can consider debt consolidation. After all, you can adjust the amount of your repayments to your available income.

It is important to know that debt consolidation also has disadvantages. As indicated above, the total amount that you will have repaid at the end of the ride will usually be higher. This on the one hand due to the higher interest rate and on the other hand due to the longer repayment term, which means that you pay interest for longer.

How can you apply for a loan for debt consolidation?

How can you apply for a loan for debt consolidation?

First of all, you will need to find a financial institution that can help you with a loan for debt consolidation. Your application will be analyzed in detail, including your current financial and professional situation. If your application is refused, you can of course always try another institution.

Through our comparison tool you can compare various loans to see which suits you best and you can also see directly at which financial institutions you have a good chance of being accepted.

What are the pros and cons of debt consolidation?

What are the pros and cons of debt consolidation?

In summary, these are the advantages and disadvantages of merging loans:

Benefits:

  • Simple way to repay with one loan
  • Lower monthly payments due to the longer duration of the monthly payments

Cons:

  • Getting a debt consolidation loan can be very difficult if you already have debts
  • Higher interest
  • The amount that you have to pay back will ultimately be higher than with the individual “old” loans

Before you start, it is important to know whether debt consolidation is the best way to keep your loans affordable. Inform yourself well in advance before making this decision and calculate which monthly repayments are feasible for you.

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