In consolidation, existing credits are settled through a new financing, which combines different amounts into a single operation. The new operation will have its own conditions, including a new interest rate, term, and payment.

It is precisely for this reason that a consolidation should not be evaluated only by the number of installments that now exist or by the monthly amount to pay.

If one of the current credits has a significantly lower rate, including it in the consolidation may change the total cost you'll have with this financing.

What happens to credit with a very low rate?

When all credits are consolidated, the individual conditions of previous contracts cease to exist.

That is, even if one of the credits currently has a very competitive rate, this rate is not kept separately. The credit is settled, and its value becomes part of the new consolidation operation.

For example, imagine that you have:

Debt balance

Credit A

Debt balance: 8.000 €

Rate: 6%

Credit B

Debt balance: 5.000 €

Rate: 12%

Credit C

Debt balance: 3000 €

Rate: 14%

In this case, Credit A has a much lower rate than the others.

Consolidating the three credits, the 16,000 euros become part of a new operation with a new rate and u.

In this case, Credit A has a much lower rate than the others.

By consolidating the three credits, the 16,000 euros become part of a new operation with a new rate and new term.

If the new rate is, for example, 10%, Credit A stops benefiting from the 6% it originally had.

Therefore, it is important to compare the cost of consolidation with the cost of maintaining each credit separately.

What if the lowest rate is on a loan that's about to end?

In this case, it's especially important to do the math.

If a loan is near its end, consolidating it may mean replacing a debt to be paid soon with a new operation with a longer term.

For example, imagine only 18 months are left to finish a loan with a low rate.

Including it in a 7-year consolidation, the balance of this loan becomes paid over a much longer period.

Even if the new global payment is lower, the cost associated with this part of the debt may increase.

That's why just comparing rates isn't enough. It's necessary to also analyze the debt capital and the remaining term in each contract.

What if the new consolidation rate is lower than other credits?

It may be precisely in this scenario that consolidation makes more sense.

If you have multiple credits with high rates and a new operation can consolidate these debts with more competitive conditions, there may be a reduction in financing costs.

Still, you should consider all costs associated with the new operation.

The comparison should include the TAEG, total amount charged to the consumer, term, possible fees, and other costs outlined in the contract.

How to know if it's worth consolidating?

A simple way to start is to gather information from all current credits.

For each credit, record:

Debt capital

Monthly payment

Interest rate

APR

Time remaining

Costs associated with early settlement, when applicable

Then, compare these values with the terms of the consolidation proposal.

The goal should not be simply finding the lowest monthly payment. You should understand the total cost and if the new operation effectively improves your financial situation.

Can I leave out the loan with a lower interest rate?

It depends on the operation conditions and the financial institution.

Sometimes it's not necessary to consolidate all credit obligations. There may be a possibility to include only certain credits in the new operation, keeping other contracts separate.

This can be an interesting alternative when you have a loan with particularly favorable conditions.

For example, if you have a loan with a low rate and another set of loans with significantly higher rates, it may make sense to analyze consolidating only the latter.

However, the solution depends on the concrete analysis of the operation and the available conditions.

What to compare before consolidating?

Before proceeding, compare at least:

What to compare

Why?

Monthly payment

Allows to understand the impact on the budget

< b > APR < / b >

Helps compare the overall cost of credit

Interest rate

Shows the cost associated with financing

< b > Term

A longer term can reduce the payment, but increase the interest.

Debt capital

Allows to see how much really needs to be paid

Total Cost

Shows how much you can pay over the contract

Commissions and other charges

They can change the final cost of the operation

If one of your credits has a much lower rate, consolidating it may not be the most advantageous option. When consolidating, this credit is paid off and becomes part of a new operation with a new rate and term. Therefore, it's important to compare the total cost of consolidation with the cost of keeping this credit separate.

Do a simulation before deciding

Each financial situation is different. A simulation can help understand if consolidation allows reducing the payment without unnecessarily increasing the total financing cost.

Frequently Asked Questions

Can I consolidate just some of my credits?

It may be possible, depending on the financial institution's conditions and the operation. If you have a loan with a particularly low rate, it's worth analyzing whether it's worth keeping it separate.

What happens to the rate of old credits?

The credits included in the consolidation are settled and replaced by a new operation. The rates of previous contracts no longer apply to these credits.

Should I consolidate a loan that is about to end?

Not always. If there are just a few months left on a loan, it's important to compare the cost of keeping it until the end with the cost of including it in a new operation with a longer term.

How do I know if consolidation is worth it?

Compare the current installment, the remaining term, and the total cost of credits with the conditions of the new operation. The APR and the total amount charged to the consumer are particularly important in this comparison.

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