The debt consolidation loan is an instrument introduced in Italy by decree law 212 of 2011, in order to avoid the over-indebtedness of Italian families. It is a form of financing that collects all the loans in progress in a single monthly installment, lower than the sum of the individual bundled installments: a solution that can make it easier to be able to pay off the debts contracted. Let’s briefly see how it works; for those interested, you can deepen the topic by consulting the guide available at this link.
How does a debt consolidation loan work?
Let’s start by saying that debt consolidation is possible both if all the loans have been requested from the same bank and if they have been granted by different banks. Depending on the credit institution to which one turns to obtain consolidation, it is possible that once the new loan has been obtained, it is necessary to go in person to the individual banks to pay off the old loans, or that it is the institution itself to take also take care of these steps. Very often additional liquidity is also granted to meet the most urgent expenses.
The new loan obtained will incorporate all the previous ones and will provide for a longer repayment period, but can in turn be paid off early at any time.
What guarantees are needed?
The requirements for applying for a debt consolidation loan are typically as follows:
- age between 18 and 75;
- open-ended contract (or demonstrable income for self-employed workers) or holding a pension.
Even in the presence of these requirements, however, it will not be possible to obtain the loan if you have been reported as bad payers (if not using a debt consolidation through assignment of the fifth).
It is very likely that the lender will protect itself from possible insolvency by asking for the presence of a guarantor . Quite frequent for a debt consolidation is also the stipulation of a contract for the exchange of installments , or even the signing of a bill of exchange that covers all or part of the financing. This means that in the event of non-payment, the bank will be authorized to attach the customer’s assets for a value equal to that of the money not returned.
To disburse the loan , moreover, it will be necessary to provide the credit institution with the documents relating to the loans to be paid off, in particular the extinct accounts, that is the calculations of the residual debt to be repaid.
Debt Consolidation: Worth It?
A loan for debt consolidation has some undoubted advantages: first of all, it allows you to plan your future in a simpler way, as it is certainly easier to manage a single monthly installment compared to many different loans. As mentioned, moreover, the new installment will be a little lower than the sum of the previous ones, which certainly does not hurt.
On the other hand, we should not even underestimate the costs deriving from the extension of the repayment period , consisting of the highest interest on the figure obtained. It is therefore important to consider whether with a debt consolidation you will not end up spending much more than when you had multiple separate loans.