Today, financing has been stipulated for purchases of various kinds, from cars to smartphones, from holidays to furnishings. By accumulating debt, the management of installments can become very complicated and the economic burden unsustainable in the long run. In these cases, debt consolidation is convenient, but how does it work and what does it offer to the consumer in difficulty?
Legislation that establishes debt consolidation when convenient
Before discussing why debt consolidation pays off, it is best to clarify what it is. It is an instrument that is regulated by the decree-law 212/2011, useful for dealing with situations in which there is a strong indebtedness.
The consolidation essentially corresponds to a loan thanks to which the other loans are paid off. The previous installments are thus transformed into a single installment, which will have a lower value due to the effect of a larger amortization plan and a rate which in some cases is even lower.
By stipulating a new loan, new repayment terms are defined. From a practical point of view, debt consolidation is convenient because instead of paying several installments, the debtor pays only one and of lower value.
Requirements relating to when it is convenient to do debt consolidation
To obtain the consolidation loan, the client must contact banks and finance companies. His profile will then be analyzed, only if he has a solid credit profile will he be granted the loan.
The applicant must have guarantees and adequate income. Those who have experienced serious problems in repaying previous loans and are poor payers, very often do not receive the desired credit. The risks associated with the customer must be rather moderate overall.
Sometimes the lender requires a guarantor as collateral, but only for the most risky customers. Obviously, the applicant must submit to the provider all the documents that are necessary to certify his position.
When checking the contractual conditions, the consumer must pay attention to deadlines and installment values, without neglecting rates, costs and APR. The penalties that are determined in the event of a default condition should also be analyzed.