Do loan replacements make sense?

Ron75

Hi, I wonder if anyone may have experience in taking out a bigger bank loan to replace smaller ones?

I currently got 5 personal loans with different institutions which total to around €20k and paying ca €630/month. I saw an offer from Revolut where they offered low rates on their loans which would result in a monthly repayment of about €480 for a 20k loan.

I'm also planning on putting in lump sums to be able to pay off the loans as quickly as possible.

Has anyone done that? Are there any pitfalls I should be aware of? Any advice and thoughts would be greatly appreciated.

Sheep Shagger

Debt consolidation is normally a good idea, if the big loan has a cheaper interest rate, move to that and keep your repayments at the €630pm if you can, means you'll pay it off faster.

Less admin etc than having all the small loans.

phormium

Normally an ok idea if you are moving to a cheaper rate, however watch that you are not lengthening the term on the overall debt.

Buddy Bubs

Quite the drop in repayments, term must be plenty longer to do that

Compare rates offered v existing loans.

Ron75

Thanks all. My current loans are 9+% while the rate for the bigger loan is 5.99%. Hence the lower repayment rates. Plus it's another year on top of the current terms.

The last 3 years have been quite challenging financially, hence the various loans, and why I want to keep the monthly repayments as low as possible. Still budgeting €500 a month for savings to rebuild my emergency funds for the next 12 months and then start to pay off extra to hopefully pay off my debts within the next 3 years. So far the theory...

Sheep Shagger

https://www.boards.ie/discussion/comment/121325455#Comment_121325455

Like with any loan, pay off as much as you can as quickly as can (and are allowed).

Madd002

https://www.boards.ie/discussion/2058321067/do-loan-replacements-make-sense

your best maybe getting a 20k loan from credit union as the interest rate reduces as the loan balance reduces and you can pay lump sums of balance no issues. with another provider they give you rate of loan and interest at a set balance.

Jim2007

https://www.boards.ie/discussion/comment/121325455#Comment_121325455

You are basically borrowing to save and that rarely works out well as you’ll struggle all the more to pay down debt in an emergency. Set a very tight budget for yourself and concentrate on paying down debt much faster.

Consolidating debt in order to reduce payments and interest can be a good option, provided it is not done as part of settlement agreement with the financial institutions arising out of your inability to meet previous comments as that could trigger a reporting event and have a negative impact on your credit report with the CCR.

JVince

https://www.boards.ie/discussion/comment/121326238#Comment_121326238

Every normal lending institution charges interest on the reducing balance.

I doubt any credit union is currently offering 6% for debt consolidation. Most are 8%-10% at present.

Makes sense for the OP, but keep the term as short as possible.

martingriff

Are there any problems like a fee for paying your current loans

Madd002

https://www.boards.ie/discussion/comment/121326290#Comment_121326290

I remember early 2000's I got a 20k loan including interest of 5k over 5 years, so 25k was due bk, 416 pm over 60mnths, after 3 years I was in position to pay balance but 10k balance was what I had to pay, so 416 x 24 =10k.

I've been with credit union ever since.

Ron75

Thanks everyone. Will have a chat with Credit Union as well. If I can save €100+ a month and use it to build up my emergency funds and then use it to pay off my debt even quicker, it's a good thing to do.

Ron75

@martingriff, there shouldn't be any issues/ fees with paying off the loans earlier as I opted in for early repayments.

The same will be a crucial requirement if I go for the new loan to consolidate my debt.

I already paid off another loan a bit earlier and the 2nd loan will be fully paid in December. After that I'll focus on the remaining 20k as being debt free (except for the mortgage) is the big goal.

witchgirl26

https://www.boards.ie/discussion/comment/121325455#Comment_121325455

Check the overall estimated cost of credit of all your existing loans & of the one mentioned above. You're adding an extra year on even if it is at a lower rate. Once the estimated cost is lower, then it's worth looking at. Why would you pay off more money when you don't have to. Also just be sure to check that there's isn't a penalty or hidden cost to paying off any of the existing loans early.