What exactly is a consolidation loan, also known as financial consolidation? All available definitions state that it is a combination of several liabilities into one loan. So what is consolidation in practice?
Obtaining a consolidation loan means that all financial obligations indicated by the borrower are repaid for the capital obtained from the creditor. As a result of this operation, we have already repaid all our creditors’ liabilities. The only creditor we have to pay back is the financial institution that gave us the consolidation loan.
What is a consolidation loan?
In some cases, banks are willing to grant a consolidation loan with a higher amount than would appear from the sum of the customer’s combined credit obligations. Additional cash is treated as a cash loan and can be used in any way.
However, please note that a consolidation loan is not the same as a debt loan. Loan consolidation is not intended for people who already have a long and bad credit history at the Credit Information Bureau. At the same time, the terms consolidation loan and the refinancing loan cannot be used interchangeably.
Refinancing involves the transfer of a loan obligation to another bank, but on more favorable terms, albeit for the same purpose. Consolidation is a combination of loans.
A consolidation loan under a mortgage
A mortgage consolidation loan is nothing more than consolidation with a mortgage. Because of the solid security under the form of a mortgage, the bank is willing to provide the consumer with more favorable credit terms.
First of all, the maximum loan amount will increase, which will give us greater possibilities to consolidate financial liabilities, and we can also obtain a lower interest rate.
Banks will also be willing to consolidate us for a longer period. However, obtaining a mortgage combined with consolidation requires the client to meet certain conditions. Mortgage consolidation is a slightly more complicated and time-consuming undertaking, sometimes also associated with additional costs.
What conditions must be met to take a mortgage consolidation loan?
In order to obtain a consolidation mortgage, several important conditions must be met. The conditions for taking out mortgage consolidation are similar in most banking institutions.
If you take out a mortgage consolidation loan, you must have a mortgage. It looks different than in the case of cash consolidation, where the client’s regular income is the main collateral for the bank.
An obvious condition is also adequate creditworthiness assessed on the basis of income, as well as creditworthiness analyzed by banking specialists on the basis of reports from BIK and other institutions involved in collecting information on credit history. It is also necessary to have Polish citizenship and permanent residence in Poland.