Merging individual loans can be a sensible measure.
This means that several loans are canceled and a single “large” loan is taken out. The many “small” loans are combined into one larger loan. Merging individual loans is particularly useful under two conditions :
On the one hand, the borrower can save interest as a merge advantage by repaying relatively “expensive” loans and combining them into a new loan that includes a lower interest rate.
Combining several loans into a single loan
On the other hand, combining several loans into a single loan leads to a significantly better overview , which is another advantage. Because instead of having to pay five different loan installments on five dates a month, the borrower will only have to pay one installment per month in the future.
One of these two factors – saving interest or getting a better structure/overview – should therefore be aimed at every borrower who is considering merging their loans. The following procedure shows how pooling loans works in a practical way:
- First of all, you should compare the loan offers available on the market and decide on a cheap loan.
- The selected new loan can then be taken out, which in total must at least correspond to the current remaining debts from the previous loans
- After the new loan has been paid out, the previous loans can be canceled or repaid
What are the disadvantages of pooling loans?
In addition to the advantages mentioned, the credit summary can have the disadvantage that lending rates on the market have risen in the meantime. Then you would have to pay more interest on the new loan than on the previous loan.
In addition, some banks charge processing fees for early redemption and possibly a prepayment penalty. Interest that has already been paid is sometimes not fully recalculated. The new lender may even want to have collateral that has not previously been required.
In any case, you should never cancel the loans used until you have the new loan “in your pocket” .
In conclusion, it can be stated that it can make sense to combine several loans into one. However, one should always compare the advantages and disadvantages before pooling the loans.