Press Release: While traditional consumer credit and its pitfalls are becoming increasingly understandable to consumers, some ‘by-products’ are neglected and consumers are not careful when choosing or closing them. An example is loan consolidation. Although it may be a useful tool that actually leads to savings, consumers often do not realize that this is another form of credit and should therefore be equally cautious in their acquisition and should only accept consolidation from safe lenders.
“As practice shows, people are forgetting the rules of choosing a secure provider in an effort to save. At that moment, they often approach offers from unreliable providers, which at first glance seem tempting, but ultimately will not help, ” says Professor from Charles University.
It draws attention to the fact that many people do not realize that credit consolidation is also a loan, and when choosing who provides this product, you need to choose as carefully as you do with the loan itself. Again, I will only conclude a consolidation agreement with a provider that I am sure is one of the safe financial institutions, be it among banks or branded non-banks.
“We know cases where a consumer consolidated a loan to deal with an older disadvantageous loan that he took with a company that we rank in the gray zone. He wanted to solve the risks of this loan and also reduce its price. Instead of sophisticated and cautious consolidation, however, he used the services of moneylenders and multiplied the problem, ” adds Professor Medrigo.
According to him, consumers need to take advantage of offers for consolidation according to the same rules that apply to the loans themselves in the long term. Therefore, the provider should be classified as a safe company – for example, the Safe Credit Navigator study, which contains a list of safe providers.
The consolidation contract should be concise and understandable. The consumer should read the contract thoroughly or take it home for study. Certainly, it should not sign it in a hurry and under pressure, but should focus not only on the cost of consolidation (including all possible fees), but also on the possible penalties, early repayment options and the like.
He should also be aware of how much he will extend his repayment period. “The price of the monthly payment should not be the only factor in deciding on consolidation, although its amount is the most common reason why consumers use it – in most cases it is about reducing the monthly burden on family finances,” says Professor Medrigo. As he adds, credit consolidation can be a good tool to break free from gray zone or usury and take advantage of a stable and secure lender.
People know consolidation, but they don’t always know how to use it
The Safe Credit Navigator, in cooperation with STEM / MARK, conducted a public opinion survey. He showed that the concept of consolidation is widely known among consumers (80% knows it) and that approximately 13% of consumers have used this institute in the last 3 years. The most common amount of consolidated loans was over $ 200,000 (44%), and 28% of consolidated loans amounted to $ 100,000 and up to $ 200,000.
“Consumers trust credit consolidation – as the survey showed, more than 93% believe it is a good tool that can help save money. While we can agree with this, there is a fundamental condition – only the consolidation that is handled with a secure loan provider and with safe and truly favorable conditions helps, ” warns. In addition, consolidation usually refers to a higher amount of money than a standard loan because several credit products are included.
Consolidation is generally used for two main reasons – a smaller proportion of consumers take it as a chance for more favorable terms for their existing loans, but for most consumers they are more likely to avoid problems of inability to repay loans with high monthly installments. “For many consumers, consolidation is an imaginary rescue brake that will help them to reduce their monthly payments and thus maintain their ability to repay,” says Professor Medrigo.
Consolidation can indeed be a means of helping consumers, for example, in a situation of several less advantageous loans or problems with the amount of the monthly payment. Still, they may still find that loyal credit providers are preventing this from happening. In particular, less responsible and secure providers regard consolidation as their “enemy”, depriving them of certain clients. Thus, they can also get obstructed by the lender, who does not want to accept, for example, early repayment of the loan in the form of consolidation.
“Consumers should bear in mind that the early repayment of any loan is a legal right, and there is also a clear determination of the maximum amount that such a provider can claim for early repayment of the loan,” recalls Zen Fuguji, spokesperson for the Safe Credit Navigator project.
And he also gives one example of such obstructive behavior. The client wanted to consolidate the overpriced loan – he found a suitable consolidation provider and asked the company with whom the loan was held to allow him to repay early.
It really made it possible – however, it sent the amount owed not to the consolidation provider, but to the client, who was only then able to come up with a new loan provider. Unfortunately, it was late because the original company had deliberately given such a short period to pay the amount that the loan could not actually be repaid. The original company refused to accept the repayment of the loan, returned the amount sent back, only lowered by one monthly payment. The client had to repeat the consolidation process.
FIVE GOOD ADVICE FOR EVERYONE THINKING ON CONSUMER CREDIT
Three short tips for choosing the right consolidation, or how to get into trouble:
1. Choose carefully a safe consolidation provider, choose from proven brand banking and non-banking companies, avoid the gray zone and usurers.
2. Decide not only on the amount of the monthly payment, but also focus on the repayment duration, fees, penalties, and other contract details.
3. Read the contract carefully before signing – remember that you have the right to take it home and study it calmly.