One of the major mistakes of families that turn to consolidated credit is to do so when they already have the “throat rope.” In fact, it is on the limit that everyone remembers the consolidation of credits as a solution to all difficulties.
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Imagine a couple, Manuel and Maria (fictitious names) who currently have a monthly total income of € 2,300 and credit installments of € 1,040, distributed by:
- Mortgage: € 400 month
- Manuel’s Automobile Credit: € 320 month;
- Maria’s Automobile Credit: € 320 month.
Recently Manuel, while he was in control of his family budget, had a fantastic idea and decided to share with Maria.
Manuel: Maria, what if we consolidate our credits?
Maria: Manuel, do you think this will bring some benefit?
Manuel: Well, I believe we can save more than € 6,000 of interest in consolidation and maintain our standard of living and still save more money than we are saving …!
As we can verify the current situation of Manuel relates to the existence of housing credit for the amount of € 75,000 of principal in debt and 2 automobiles of € 15,000 each of principal in debt totaling € 105,000.
Monthly it supports 1,040 euros of installments.
How to Negotiate Before Consolidation
As you can see, Manuel does not have the rope in his throat, as he has an overall monthly income of € 2,300 and benefits of € 1,040, and Manuel’s effort rate is 46%.
As it is not with the rope in the guarantee then it has to negotiate capacity. Soon, your bank will be receptive to consolidate and if it is not, other banks will be.
Manuel advances with a convincing speech and intends that the consolidation be made at the same rate of interest of his housing credit. Manuel knows that distracting the mortgage from his housing loan will cost him nothing, but that he will have a charge of 0.5% on the amortized capital of 375 euros.
As car loans were made under Decree-Law no. 133/2009, it has no charge for early repayment.
Manuel also knows that to consolidate the credits will have to bear again, charges with a mortgage, bank, and Taxes, the reason why these charges total, € 1,600.
Adding all the charges we have € 1,975 for the consolidation of credits.
Manuel is focused on doing a good deal with the bank, so he enters into negotiations to eliminate the partial and total early amortization charge of his new consolidated credit and as a counterpart, he subscribes and undertakes to transfer the insurance of the cars to the bank.
What are the Results?
As you can verify the consolidation will save € 480 per month in benefits and at the level of interest and total charges, we have € 30,535.00 higher than € 1,900 compared to the original situation.
As Manuel has the financial capacity, we do not apply one of the basic strategies of consolidation that is to extend the overall term, to lower the installment. However, car loans have gone from 60 months to 240 months.