In the “Debt Consolidation Loan Guide” we explain everything you need to know about this type of financing.
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The offer for debt consolidation present on https://dedebt.com/ website is very easy to get. The peculiar characteristic of the loan for debt consolidation is that it is used to consolidate several outstanding debts into a single loan and if possible and desired to obtain additional liquidity: the process of preliminary investigation and assessment of the feasibility of the operation is therefore rather complex as it is necessary to obtain the documentation of the loans to be extinguished, in particular, the relative extinguishing accounts, which are the documents attesting how much must be paid to the financial institution which is extinguished to free the applicant from the obligations towards him (the extinct accounts allow to calculate the amount to be paid off for each loan taken out).
Generally, the granting of a loan for debt consolidation is not subordinated to the presentation of collateral (i.e. lien or mortgage on property owned by the applicant). However, it may happen that in some cases, in order to limit the risk of insolvency, the lending institutions submit to the applicant a contract that provides for the change of installments, or a single bill, able to guarantee a part or the whole amount disbursed.
The most common form of guarantee, however, is the signature of a co-obligee or a third-party guarantor, who will guarantee the success of the operation.
This is a rather common request, in the presence of particular conditions (such as for example an applicant with recent working seniority or in the face of a particularly high amount of the consolidation loan or of some small payment problems with the loans that intend to consolidate).
In any case, it is not possible to establish rules valid a priori since any request for guarantees is at the discretion of the individual Institute, which decides on a case-by-case basis, depending on the risk profile of the transaction and the individual applicant.
The elements of the contract
The law states that an auto loan agreement must contain the following elements:
- the data and contacts of the lender and the credit intermediary (if any)
- the interest rate applied;
- any other prices and conditions applied, including higher charges in the event of late payment;
- the amount and methods of financing;
- the number, amounts and due dates of the individual installments;
- the annual percentage rate of charge (APR);
- the detail of the analytical conditions according to which the APR can be possibly modified;
- the amount and reason for the charges that are excluded from the calculation of the APR;
- any guarantees required;
- any optional insurance covers not included in the APR calculation.
Failure to pay an installment
The interruption of the repayment of the loan implies the immediate default towards the lender and the risk of unpleasant consequences:
- the interest due would be increased, with the application of late payment;
- there is a risk that your name will be included in the list of late payers and / or reported to the credit protection bodies (the Central Credit Register), which will share the information with the entire banking and financial system. The result will be a deterioration in the customer’s creditworthiness and a consequent greater difficulty in obtaining credit in the future.
Failure to punctually pay even one installment authorizes the lender to unilaterally terminate the contract. The customer will be required to pay all bank and protest charges as well as all charges incurred by the Institute to recover the sums due, in addition to a possible penalty.
The law states that it is always possible to pay off the loan in advance of the agreed term. The customer who chooses to exercise this option will be asked to repay the remaining capital still due, plus a penalty which, by law, cannot exceed 1% of the amount financed. If the contract does not specify the amount of the residual capital after each repayment installment, the sum of the present value of all the installments not yet expired on the date of the early repayment must be understood as residual capital.
Below we illustrate some specific evaluation criteria of the loan for debt consolidation.
- Risk policies Each Institute applies its own risk policy in assessing requests, based on the statistical data it possesses (credit scoring). These data constitute the tool that allows the Institute to keep insolvencies below a certain level.
- Income level Acceptance of requests is normally also subject to the appraisal of the applicant’s level of income and the relationship between the latter and any repayment installment (also considering any installments of other loans that the applicant should not pay off with the loan for consolidation).
- Credit reliability Finally, the creditworthiness of the applicant is of great importance. It is important to stress that this assessment has no “moral” meaning. The Institutes merely estimate the level of risk associated with each request, also on the basis of the credit reports provided by the Risk Centers. If the applicant’s credit history has some “flaws” (delays in repayments of previous loans, outstanding, etc.), the probability that the request will be accepted is obviously lower. In some of these cases, a valid alternative is constituted by the Transfer of the fifth, a solution which, by offering the appropriate guarantees to the lender, allows the adoption of more flexible evaluation criteria.
The economic conditions
When choosing between several financing offers, it is good to consider the overall cost of each, without limiting itself to the evaluation of the monthly installment only.
However, this is sometimes not a simple operation, as the expense items of a loan can be numerous (amount disbursed, interest, ancillary charges, any initial expenses, insurance costs) and are not easily measurable immediately. In general, the elements that should be considered before signing a loan agreement are:
- TAN (Nominal Annual Rate)
The TAN represents the interest rate, expressed as a percentage and on an annual basis, applied to the financed capital (sometimes gross of any insurance costs or preliminary costs). It is used to calculate, starting from the amount financed and the duration of the loan, the portion of interest which will be paid to the lending institution and which, added to the share of capital, will determine the repayment installment.
- APR (Annual Global Effective Rate)
The APR is a measure, expressed in percentage terms, with two decimal places, and on an annual basis, of the total cost of the loan. Unlike the TAN, the APR is inclusive of any ancillary charges, such as preliminary costs and insurance costs, which are charged to the customer. However, the Italian legislation allows, under certain conditions, a certain discretion, excluding or including some items in the calculation of the APR: insurance costs, for example, is optional, can be excluded from the calculation. So pay attention and carefully consider your total expenditure, analyzing each time the individual items of the offer that is proposed to you.