27 December 2018



A consolidation loan is a bank product that may help you repay your previous debts and prevent from falling into a spiral of debt. Debt consolidation entails combining several loans or bank loans into one obligation with a unified interest rate and extended repayment term. It is usually those who pay off several loans and need help in managing them that decide to take a consolidation loan.


What is a consolidation loan?

Consolidation loans are used to pay off previous liabilities. Instead of paying off several loan installments, a consumer only needs to worry about one financial liability. Such loans are not only provided by banks and you can choose to take a non-bank consolidation loan with less formalities attached. Various types of loans may be integrated, including cash and housing loans, credit card limits and overdrafts. Granting a consolidation loan results in the expiration of previous liabilities towards financial institutions. From this very moment a client handles one instalment and pays off debt to a single institution who provided the consolidation loan.


There are two types of consolidation loans:

Cash loan. It allows you to obtain an additional amount in excess of the consolidated liabilities, which may be spent for any purpose. The features of this solution include simplified procedures and fast credit decision. The total loan amount does not usually exceed PLN 150,000.

Mortgage. The loan amount is limited to the value of real property constituting the security for the liability. Financial institutions accept any form of income, the interest rate is lower than for cash loans, but the repayment term is significantly longer. More formalities are attached to this type of loan.


Consolidation loan – pros and cons

It is a good idea to take a consolidation loan if you need to pay lower monthly installments or want to more effectively manage necessary expenses. One of the benefits of a consolidation loan is, undoubtedly, lower monthly installment. Payment date is determined by the debtor, which may help to address problems with timely payments and few days’ delays often resulting from misalignment between the repayment date and remuneration date. Additionally, non-bank consolidation loan terms and conditions are negotiable, and, therefore, it is possible to adapt them individually. Financial institutions often also offer the option to receive additional cash – its amount usually depends on one’s credit capacity.


However, don’t forget that lower monthly installments mean the extension of the financing period and additional commission for the lending institution. It means that the total outstanding amount will be higher than the sum of previous liabilities. Despite this, a consolidation loan is a convenient and fast solution to give your household budget, depleted by high installments, a boost. It is also beneficial for those, whose previous loans had unfavorable terms and very high interest rates. Consolidation is the last hope for those threatened with insolvency.

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