To finance a purchase, many people claim the option to take out a loan. So the financing is secured and it is monthly a small installment amount paid back to the lender. It can also be the case that a person does not have only this one loan, but has more loans and pays monthly for a rate.
Often, many small loans have accumulated, which have different maturities and different interest rates. However, a borrower would like to have only one loan and then pay a slightly higher rate to possibly have a better overview of the finances.
In such cases, it is often thought about the possibility of combining the loans so that only one loan is available. The merger of many loans into a single one is called credit consolidation.
It makes sense to do this if the monthly burden can be reduced a bit and the term does not increase significantly. Even if a savings would be relatively small, a loan consolidation leads to a better overview, because so does not have to be checked every single credit again and again, when this is possibly paid off.
The process of loan consolidation is basically always the same
First of all, it is important to calculate the total amount of the individual obligations. Furthermore, each individual loan agreement must be checked to see if it can be redeemed early. Subsequently, the search for a credit institution must be made, which offers a cheap loan and on the other hand, this loan can be used for the loan consolidation.
It is important, even if it is not apparent in the credit information, to notify the relevant credit institution that this loan should bring together several loans.
Not every bank simply approves such a loan when it is recognized by the Schufa request that there are already several loans. But if a loan consolidation is to be made, the bank knows that the existing loans are thereby deleted from the Schufa.
By combining individual loans, it is often the case that the credit costs can be saved, because only one interest rate is available, which may still be relatively cheap.
Due to the premature repayment of the loans by another bank, however, it may be that the current credit bank demands a prepayment penalty.