September 26, 2019
Sure, consolidating bank loans can help you reduce financial stress by decreasing your repayment size. But how do you know if you’re making the right decision to consolidate? Join us as we explore consolidation.
Is Consolidating Bank Loans Right For You?
If you feel like you’re drowning in debt and can’t seem to get a handle of it, perhaps it’s time to consider consolidating your loans.
Keeping yourself in a risky position may leave you falling behind on repayments and could end up damaging your credit rating.
Managing your finances doesn’t just mean making regular repayments, it also means critically looking at your debt and finding a more affordable way to meet your financial obligations. We help you navigate through what it takes to consolidate bank loans so you can determine if it is the right move for you.
What Does Consolidating Bank Loans Mean?
You may have already heard of debt consolidation where people take their outstanding debts – such as credit card balances – and roll them into one easy payment. Consolidating bank loans works the same way, except you’re combining several existing loans.
For example, if a personal loan was taken out to fund a holiday, separate to your existing car loan and mortgage, these could be consolidated into one.
In this example your personal loan is outstanding $8,000, your car loan $25,000 and your mortgage $250,000. The repayments for these equate to $2,586 per month each accruing interest at different rates.
Looking at your existing bank loans, you decide to roll all your debt into your mortgage because this has the lowest interest rate. Plus, you’ve already paid $100,000 off your home since you took out the loan.
In this example, you’ve reduced your monthly repayment of $2,586 down to $1,241.
Not only have you reduced your repayment by half, you have also reduced interest paid and can now afford to pay off more of your loan if you wish.
Can Consolidating Bank Loans Work For Me?
Consolidating bank loans will work provided you look at your financial circumstances critically. For example, if you have many loans and you cannot manage payments, then you need to adopt new spending habits. It’s essential to focus on paying off your existing debt before accumulating more.
Additionally, you must find a loan that gives you a lower rate of interest than what you were previously paying. This strategy will make consolidating bank loans worthwhile and put you in a better financial position.
What are the Pros of Consolidating Bank Loans?
There are several benefits when consolidating bank loans.
- Better Interest Often, personal and car loans attract a higher interest rate. Also, your home loan may be a higher rate if you’ve been with the same lender for some time and the market has become more competitive. Consolidating bank loans can help you save both short-term and long-term.
- Greater Flexibility Consolidating bank loans allows you to reduce your monthly repayments, giving you increased financial freedom. Plus, you’re able to make one payment instead of many, which can make it easier to budget.
- Reduced Stress Often with higher debt comes increased stress. Therefore, reducing the amount needed to meet your monthly financial commitments can alleviate any financial pressure.
- Maintains Credit Score Consolidating bank loans increases your chances of meeting loan repayments and protecting your credit score.
Are There Disadvantages to Consolidating Bank Loans?
Before consolidating bank loans, make sure you:
- Consider Fees Often, a lender will charge you to refinance a loan and expect ongoing charges. Before looking to consolidate, make sure you know about the hidden costs. Otherwise, it may be more expensive than anticipated to refinance.
- Check Exit Costs Some lenders charge an exit fee so make sure you ask in advance.
- Counteract Long Term Interest Personal and car loans are short term, usually 5-years, but a home loan spans over 30-years. If you’re rolling a personal or car loan into your mortgage, ensure you don’t end up paying more interest with a lower rate over a longer term. If you don’t check, then that holiday or car you purchased may end up costing you far more.
Are you looking for a more competitive home loan rate? If so, then contact eChoice. Our brokers have access to 100’s of products and have helped thousands of Australian’s secure the right home loan at more affordable rates.
Written by Refinancing.com.au
Refinancing.com.au is an end-to-end service that helps people refinance their home loan. We empower you to search for your home loan, and choose the process that suits you.
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