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In past years the relative ease of access to credit and the commercial aggressiveness with which some loans were offered (in particularly targeted loans and revolving credit cards) caused the explosion of the phenomenon of over-indebtedness of people and families
The problem of over-indebtedness is more often than not linked to the total amount of debts contracted, which remains fairly modest, but at high rates and above all the shortness of loan amortization periods which lead to excessive accumulation of monthly installments.
The advertising of electronic products or cars is a flowering of slogans like “Yours for only 50 USD a month” or “Take today and start paying next year”.
They are attractive advertisements that underestimate the commitment to turn on a loan but then the installments start to run out and you don’t always manage to pay them with tranquility.
The need then arises to have a single loan consolidating those in progress at honest rates and spread over the medium or long term that allows us to consolidate the debts or to extinguish all the small open positions while maintaining a single monthly payment.
Despite the low liquidity that characterizes the current economic situation, there are still some financial products in Italy destined to consolidate debts: personal loans, consolidation loans, and salary-backed loans.
Consolidating debts as shown on De Debt`s website means asking for a new loan that allows you to pay off all debt positions and therefore remain with a single installment to be paid.
The purpose of Debt Consolidation (sometimes also called Debt Restructuring ) must be to remedy a monthly amount of installments that are no longer tolerable by a family and therefore risks leading to insolvency.
To do this, many small debts are replaced with a single debt with a much longer maturity. The main purpose of debt consolidation is not to reduce interest but to reduce the monthly amount of payments to a level that is sustainable by the family or the individual.
When is it really worthwhile to request a debt consolidation loan?
In order for the operation to be useful, 3 conditions must be met:
- The consolidation loan must be of medium or long duration: from 8 years upwards.
- It is preferable (but not essential) that it has a similar rate and possibly lower than that of the debts to be paid off.
- The debts to be paid must be of short residual duration.
In other words, the capital to be repaid must not be excessive. It obviously doesn’t make sense to pay off a debt with a residual term of 9 or 10 years with another 10-year loan because the installment would not be reduced.
What are the personal loans that most frequently require consolidation?
Typically consumer loans. They are always short-term debts (almost never over 60 months) and at a relatively high rate. They are loans with which the purchase of consumer goods such as household appliances, cars, cell phones, travel, but also medical expenses, beauty or furnishing are paid in installments. They are rather “insidious” because they are very driven by large retailers and are switched on based on the impulse to purchase without having time to reflect on the consequences.
Then the revolving credit cards. Also very insidious because they are often granted without formalities together with the consumer loan. They have very high-interest rates and a repayment mechanism that allows them to pay interest only and therefore does not amortize the capital. It seems that they never become extinct.
Reporting in CRIF
Very often, debt consolidation is too late when the situation has already become unsustainable and has led to the first payment delays. The reporting to the SIC Credit Information System (better known – even if incorrectly – as CRIF ) makes the granting of other credits very difficult. An exception is the Assignment of the Fifth which can be obtained even in the presence of reports in CRIF, protests or foreclosures.
Debt consolidation difficulties
Even if you have the best intentions the debt consolidation loan can be difficult to obtain. Let’s look at the 2 main reasons:
- The person requesting it can be considered at risk because he has already had problems managing expenses. The banking system carries out checks on very precise historical data.
- The current phase of Credit Crunch (credit squeeze and therefore low liquidity) requires the banking system to be selective in the provision of loans; privileged subjects and low-risk loans are preferred.
Financial products for debt consolidation
There are basically three methods to start the debt consolidation operation:
Personal Loan. It is the riskiest for the disbursing bank because it is devoid of real guarantees and therefore it is the one with the highest rate but it is above all the least available and most difficult to obtain. Typically, each financial company offers this type of loan but the reality is quite different: this loan is paid very cautiously and usually only to customers already well known by the Bank itself. The maximum amount payable hardly exceeds 30 / 40,000 USD and the maximum duration is 10 years ;
The Mortgage for Consolidation. It involves an important guarantee for the Bank: a mortgage on a building. This allows you to pay even fairly large sums for long durations. The rate is also very convenient when compared to personal loans. It could be the ideal product for the figures above $ 40 / $ 50,000 but it is necessary to have a building without constraints because it is unlikely that the Bank will agree to provide a mutual consolidation with a 2nd-degree mortgage (unless the loan in 1st degree does not fall within the consolidation plan itself)
The Cession of the Fifth. For the figures up to $ 40 / $ 50,000, it is probably the loan best suited to consolidating debts. The reasons are soon told:
is a medium / long term personal loan (up to 10 years)
the interest rate is relatively low
It is provided even in the presence of unpaid or other prejudicial.
The sale of the fifth is the ideal financial product for Debt Consolidation, but if it is easy to obtain for Public Employees, State Employees and Pensioners, the same cannot be said for Private Employees. In this case, it is necessary to work in a solid, medium / large company and have a good length of service (at least 3 or 4 years).
Advice for consolidation
The chances of success go up a lot if you do things right and right.
The main purpose is to demonstrate to the person or to the Bank that he will have to decide whether or not to provide you with the loan that the operation will bring you real and important advantages that will allow you to improve, once and for all, your debt situation.
The biggest danger is to present a confused and inaccurate request that may suggest that you are just trying to catch your breath. The Bank does not have a “social” function, aims at its own profit and accepts with difficulty to take charge of a probable loss.
Before making the request:
Get all the documentation and in particular all the loan contracts to pay off. Among these, debts that cannot be clearly documented, such as loans from friends, family, etc., cannot be included. If you have them, keep them for yourself
Calculate with the greatest possible precision the extinct counts, that are calculated or request the financial amount of the total due for the early repayment of the loan. In this regard, we recall that Astro Finance offers a convenient free service for calculating the residual debt. Just enter in the FORM the essential data of the loans: monthly installment, residual duration and annual nominal rate (TAN)
Add up all the extinguished counts and you will have a precise idea of the loan required. Don’t ask for more: you would give the impression of still looking for money
Add up all the loan installments in progress and compare the amount with the installment of the consolidation loan. The difference will give you the real advantage of the transaction, that’s what counts. It is essential to be able to prove that with the income of the family you will be able, from now on, to pay with tranquility this new installment
Offer all the guarantees you have available: signatures of endorsement of relatives, channeling of salaries on the Bank, etc. Be aware that any guarantee signatures of close relatives (parents, siblings) may be important but those of friends count for little or nothing.
The debt consolidation loan is currently one of the most requested financial products although slightly more difficult to obtain. The reasons have already been examined but it is definitely not an impossible loan; the sale of the fifth is undoubtedly the financial product that offers the greatest possibilities at least for the medium / low figures but also in other cases the possibilities exist.
It is necessary, however, to present the request with due precision but above all, it is necessary to present it in time without waiting for the situation to have degenerated into an unresolved situation because this would make the loan impossible.