Budget: Why Refinance A Consumer Loan?

Have you taken out multiple loans and the monthly payments are weighing heavily on your budget? Credit consolidation can be a relevant financial strategy to lighten your monthly expenses. We will explain why and how to consolidate a consumer loan.

Who is credit consolidation for?

Contrary to a fairly widespread misconception, credit consolidation is not only for households in significant financial difficulty.

Anyone who has contracted at least two debts can consolidate them to more easily manage their monthly budget.

It may be wise to consolidate a consumer loan when one wishes to restructure their various ongoing loans.

Why resort to credit consolidation?

Credit consolidation is a financial strategy that can address different needs. This operation involves combining various debts so that only one monthly payment is made to a single credit institution.

Consolidating consumer credit allows you to:
- Simplify the management of your monthly budget, thanks to a single monthly payment to be made to one and the same lending institution.
- Reduce the amount of the monthly payment to regain financial balance. However, it should be noted that the repayment period is generally extended and the total cost of the credit increases as a trade-off for this reduction in monthly payments.
- Reduce your debt ratio through the restructuring of various debts. If your financial situation has become untenable because you've accumulated multiple loans over time, credit consolidation allows you to return to an acceptable debt ratio of a maximum of 33% and instantly regain purchasing power.
- Benefit from additional cash flow. It may be advantageous to opt for credit consolidation to meet a temporary need for money, such as unexpected expenses like car repair costs.

Note: In some cases, credit consolidation may be enough to restore purchasing power to the borrower, increase their disposable income, and prevent them from taking out a new loan, with the associated risk of over-indebtedness.

How to obtain a loan consolidation?

If the previous explanations have convinced you to consolidate a consumer loan and other types of debts, here are the steps to follow to obtain a loan consolidation:

1- Perform a consolidation simulation on the website of a credit organization. Simply fill out an online form, indicating all your current loans, all your income, as well as information about your professional situation and household composition. This online simulation is free.

2- Once the simulation is validated, your request is sent to an advisor who reviews all these elements. They calculate your household's debt ratio before and after consolidation to assess the feasibility of this financial operation. Indeed, your debt ratio after the consolidation should not exceed approximately 33% of your monthly income.

3- If your request is accepted, an advisor contacts you to propose a new overall monthly payment and a new debt ratio. These two pieces of information are crucial to determine whether it is beneficial to proceed with a loan consolidation.

4- Once these new conditions suit you, the lending organization can begin preparing the consolidation file. You will then need to provide certain supporting documents, such as a valid ID, your last three pay slips, and your family record book.

5- Once your file is complete, the credit organization sends you a new loan offer consolidating all your current debts. Take the time to review this document before signing it. You have a reflection period of 10 to 14 days depending on the type of loan.

By signing this contract, you enter into a new loan agreement with a single point of contact. This organization proceeds with the repayment of all your old loans, in exchange for your new monthly payment, to be paid over a generally longer repayment period.