How Debt Consolidation Loans Work

3 Jan

Loans that spread more and more between those who request a new personal loan, after having already requested others.

In fact, the debt consolidation loan provides for two or more loans to be merged, albeit with different financial companies, with the creation of a new personal loan contract that will resolve the old loans and allow the customer to pay a monthly installment from lower amount.

How Debt Consolidation Works

To clarify the operation of this financing we must provide a practical example.

Let’s make the case that you decide to buy a first product in installments, for example a laptop. Then you decide to opt for payment by installments for the furniture in the living room and you will find yourself paying two installments every month, one to pay the computer and the other to settle the purchase of furniture. Overall, therefore, two different monthly installments will be paid, belonging to as many loans. It is possible, in some cases, that the total monthly expenditure is too expensive. And it is precisely in cases like this that you can decide to open a new loan through debt consolidation.

It will then open a new personal loan that will pay off the old debts and that will allow you to choose a monthly payment to pay a lower amount to what you are currently paying.

 

Additional Liquidity

Some banks allow you to apply for additional liquidity with debt consolidation. This means that the debtor could, if he so wishes, request an amount of cash the maximum amount of which will change according to the chosen financial company.

 

Should we open a new loan to consolidate our debts?

One of the main questions that a debtor poses is this. Is it convenient or not to open a new loan? Are there any advantages or disadvantages? Actually there are both advantages and disadvantages.

The main advantage lies in the fact that if one were to face a sudden expense, a debt consolidation could help the applicant to reduce the monthly expenses to which it has to cope. There is also the advantage of being able to request an additional amount of money that will allow the customer to make additional purchases or to deal with daily expenses with less problems.

And the disadvantages? The disadvantage is certainly not to be underestimated. By opening a new loan, whether additional liquidity is requested and whether this is not required, the installments to be paid will go up. The amount of each installment will therefore be less than what was previously paid but there will be the problem of the number of installments that will increase as there will also be a larger amount of interest to be paid.