What is it and what is a debt consolidation loan?

We live in a world in constant evolution, situations can change even quickly. When these changes are economic and affect the ability to repay an individual or a household that has debts, a financial instrument is needed that allows you to regain control of the situation. This requires the loan for debt consolidation which, in these cases, is the best strategy to put in place to restore the balance between income and expenditure of your budget.

Debt consolidation

Debt consolidation

Debt Consolidation is a loan intended for the immediate extinction of debts previously contracted with banks or credit agencies.

It was introduced in 2011 with the aim of reducing the cases of over-indebtedness which are the cause of insolvency on loans and mortgages. Since then, this has proved to be an excellent tool to help Italian families balance their balance between monthly income and expenses.

In fact, Debt Consolidation allows one or more loans to be repaid with another loan.

In most cases, if managed well, it may have lower interest rates than existing loans. This if, when the new loan is activated, the cost of money is lower than before.

Not only that, thanks to the lengthening of the repayment period, the monthly installments will be lower, thus weighing less on the family budget. Moreover, those with the right economic requirements can take advantage of debt consolidation also to have new liquidity to be allocated to other projects.

Requirements

Requirements

The requirements to be able to apply for and get a loan for debt consolidation are basically the same as those for a personal loan. We must therefore be of legal age, resident in Italy, have a demonstrable income and not be reported as bad payers.

How to choose the best loan for debt consolidation

How to choose the best loan for debt consolidation

First of all, if you have all the requirements in order, to choose the best loan for debt consolidation, you need to get into the right mindset. You are the customer, you choose who to buy the money you need to make this financial transaction so important for your future.

Having said that, let’s see in detail how to choose the best the market has to offer in terms of financing.

1. Acquire as many quotes as possible

The bank or the finance company has a product to sell yours is a bargain that you need to conclude with both. So to make the most of your interests you need to collect and compare as many quotes as possible.

I recommend: whether you get the quotes online or from a bank near your home, always ask for the amortization plan and the SECCI form.

2. Check the APR (Effective Global Annual Rate)

The APR percentage value is the rate that best identifies the real cost of a loan. In the case of a comparison between several estimates, the lower this percentage value is, the more the loan is convenient.

Just compare the APR to choose the best debt consolidation between different budgets? Unfortunately not! Certainly it is an excellent indication of general cost and therefore good for a first evaluation. However, since some costs are not generally included in the APR, it is necessary to investigate further to choose the most convenient budget. Let’s see how.

3. Always read the SECCI form

Here comes the SECCI module I mentioned in point 1. But what is this module and why is it so fundamental to compare quotes? Let’s find out!

As you can see in the definition shown in the image above, the SECCI module (Standard European Consumer Credit Information) is the pre-contractual document that contains information in a simplified and understandable form, which also allows a less experienced user to independently evaluate the costs and conditions of the loan offer.

 Example of a SECCI module which shows the data relating to a loan for debt consolidation with insurance policy included.

As you can see, in the image above, you have various data, all useful for understanding the total cost of a loan for debt consolidation. In this case, the simulation made provides an insured loan of 15,000 USD repayable in 84 months (7 years). The monthly payment amounts to 232.80 and the insurance cost is 688.50 USD, which added to the various costs and interests lead to a total to be reimbursed equal to 19.751,20 USD.

Note that if you multiply the installment by $ 232.80 for the total number of 84 installments, the amount is not 19.751,20 but is 19.555,20. How come it doesn’t correspond to the total due seen before? Simple, they are additional costs not included in the installment. This is why the simple calculation of the installment x number of months is not a correct way to evaluate a quote.

4. Ask for help from a super partes financial advisor

Ask a financial adviser specializing in loans for help. This is if you think you are not able to evaluate the various estimates despite the suggestions above. Do it especially if the amount you need is high. Asking a professional for advice has costs that could exceed the benefits.

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