See pages where the term loan consolidation is mentioned. Consolidating loan Reducing costs by consolidating debts

Replacing several monthly loan payments with one large payment with an optimal interest rate can significantly reduce the financial burden on the borrower. If the loan holder is experiencing a reduction in the initial level of repayment capacity or other difficulties that may result in late payments, one should consider consolidating existing financial obligations.

What is debt consolidation?

If the monthly consolidated payment is less than the sum of several original payments, it is strongly recommended that you use the debt consolidation option. The ability to convert several diverse loans into one loan is offered by major banking institutions.
During the consolidation process, you can combine:
Cash loans.
Consumer loans.
Mortgage loans.
Pawnshop loans.
Credit cards.
Quick loans.
Loans for the purchase of cars.
Installment plans and trade loans.
Private loans.
It is allowed to combine any types of payments. However, consolidation must be used with caution. Mistakes made during the development of a new lending program with the combination of several loans can provoke a rapid deterioration in the borrower’s financial situation.

Consolidation usually has to be started only after difficulties have arisen during the repayment of several loans. To use the debt consolidation option, you must first go through a scoring procedure and then provide the lender with information about the problems that forced the borrower to reconsider the original terms of the transactions.

Benefits of Loan Consolidation

The debt consolidation procedure will allow the borrower to get rid of the confusion associated with simultaneous obligatory payments on several loans. Consolidating payment schedules also ensures that the optimal date for making regular contributions is selected. As a result, such a service is often used at the stage of loan refinancing with the revision of individual terms of credit transactions. By reducing the number of monthly payments, the borrower saves on commission fees. In addition, during refinancing, you can agree on a reduction in interest rates.

Benefits of loan consolidation:

1. Making one monthly payment instead of several mandatory payments.
2. Reduction of commission payments.
3. Increasing the borrower's creditworthiness.
4. Maintaining a positive credit history.
5. Reducing the risk of late payments.
6. Prolongation of the transaction - repayment of the loan over a longer period of time.

Consolidation, as a rule, involves extending the term of the contract. By extending the process of cooperation with the lender, the client automatically agrees to an increase in the total number of payments. For example, a borrower plans to combine payments on a consumer loan for a period of five years with the repayment of a commodity loan, the contract for which ends during the reporting year. Based on the current indicators of the client’s solvency, the lender may insist on using the maximum duration of the transaction. As a result, the balances of loan payments will be combined, and the repayment period will be five years.

If the current level of income allows the borrower to repay the resulting debt without any problems, the financial institution may reduce the total number of required payments. The terms of the transaction should be discussed individually.
Thus, consolidation in the banking industry is a way of voluntarily combining several monthly loan payments into one common payment with a preliminary revision of the contract parameters and refinancing of loans. In many cases, using this option will reduce the burden on the borrower, eliminating the risk of late payments.

Twenty-five years of a market economy in Russia is too short a period for the basic terms and definitions of microloans to become firmly established in the lives of citizens. So it is with loan consolidation, one of the most important concepts in the credit market. Life circumstances often force us to resort to the services of several lenders at the same time, which, for obvious reasons, requires more attention, time, and sometimes money. In a situation where keeping track of the payments of numerous loans and credits becomes too burdensome, and the possibility of refinancing a loan or extending a loan no longer helps, it makes sense to resort to the possibility of combining them into one. Often - on more favorable terms, implying an increase in the repayment period or a more flexible schedule.

Is it possible to consolidate microloans?

Loan consolidation is most often associated with banks. Indeed, many banks offer services to consolidate all current obligations of the borrower. There is also the option of partial consolidation - you combine only those debts that cause you the most concern. At the same time, it should be understood that the procedure for consolidating bank loans is not a simple operation and not every bank undertakes it. As a rule, such things are discussed with banking specialists and a strategy is developed for each specific situation.

The situation is different with the microfinance sector. Due to its specifics, the huge variability of loan processing methods, payment terms and interest rates, combining several loans into one sometimes seems to be a difficult, if not feasible, task. Therefore, there are no special organizations involved in the consolidation of microloans in our country yet. However, you can contact a brokerage agency - some brokers provide microloan consolidation services.

Disadvantages of Loan Consolidation

Before you begin the difficult procedure of combining your microloans into one, you should think it over carefully. First of all, you should be aware that nothing comes for free and eventually you have to sacrifice something. If you have come to the conclusion that paying the full cost of the loan for all your obligations takes too much time and effort, be prepared to pay a few extra interest on top of the amount for the convenience of paying off just one combined loan. As a rule, if your average interest rate on the amount of loans is 30%, then as a result of consolidation it can increase to 32%.

It may, of course, happen that the broker you choose will conduct very successful negotiations with your creditors and the credit institution within which your debts will be consolidated. Thanks to this, the payments of the consolidated microloan will better meet your requirements. Do not forget that in addition to the direct costs of paying off the debt, you will have to pay for brokerage services, services for re-issuing loans and, possibly, some additional commissions.

Before you begin the consolidation process, you should figure out two things: how much you are paying off to pay off multiple loans and how much you will pay after consolidating them into one. Then do the same in relation to time and effort - how much you spend on paying off several microloans and how much you will spend on paying off one. Finally, you should consult with experts regarding other details of your debts and after that you can make an informed decision: do your debts really need consolidation? Perhaps a friend or loved one will agree to take on part of the loan obligations - transferring the loan to a third party can reduce the loan burden.

How exactly to consolidate debts?

There is no single loan consolidation scheme. After a thorough analysis of your situation and consultations with specialists, choosing a broker or other organization ready to take on your case, you need to prepare extracts from all microfinance organizations in which you have existing loans. These statements must indicate the principal amount, interest rate, and due date.

After preparing a package of documents, you attach a consolidation application to it and wait for the approval of the organization that has agreed to handle your business. It should also be remembered that such a service is available, as a rule, only to clients with an impeccable credit history. It makes sense to ensure that your efforts in negotiating with brokers and preparing documents are not in vain.

In financial practice, a situation may arise when a lender who has provided several loans to one borrower finds it more convenient or profitable to combine these loans into one, i.e. consolidate them. If both parties agree, the first step in consolidating loans is to find the balances of each debt. Having calculated the remaining debts and summed them up, they get a combined debt, for which a new repayment plan is drawn up.

Example 7.10. The bank provided two loans to the company. The first, in the amount of 2.0 million rubles. at 8% per annum, must be repaid in equal semi-annual payments over 6 years, interest accrued semi-annually. Second – 1.5 million rubles. with a maturity of 4 years, rate 12%, capitalization annually.

After payment within two years, the two debts are combined into one under the following conditions: the consolidated debt has a maturity of 8 years, repayment is made in equal semi-annual term payments, interest rate is 14%, semi-annual capitalization. Determine the amount of semi-annual urgent payment.

Urgent payment of the first loan:

Balance of the first principal debt after two years of repayments (four urgent payments):

Urgent payment of the second loan:

The balance of the second principal after two years of repayments (two term payments).

In this case, a mechanism called loan consolidation comes to the rescue. To manage money effectively, you need to be able to correctly use this financial instrument. Any debt obligations can be transformed if the borrower is given the right to do so in the relevant agreement.
Do not confuse consolidation - combining credit obligations, with refinancing - obtaining a new loan with which the client covers previous obligations.

Let’s assume that the client has a large number of different loans, both small ones, taken for the purchase of household appliances or overhead expenses, and large ones, spent on training, repairs, travel, medical care, and in a fairly large number of banks. After all, one bank may not lend large sums of money at once.

Loan consolidation should be carried out when all the components of this mosaic coincide. You need to understand that not every bank today undertakes such an operation. After all, sometimes a credit history is so burdened with penalties and interest that even specialists will not undertake to untangle this tangle.

The following facts speak in favor of consolidation.

1. All current obligations of the borrower are subject to consolidation. There are banks that consolidate selective loans. If such a calculation is beneficial to the client, then you can agree to partial consolidation, which will alleviate the debt.
2. During the consolidation process, one bank becomes the new lender for the client, which is very convenient. Now you will not need to remember all the terms and other conditions of all loan agreements. There will be one consolidated loan agreement. Instead of a large number of small amounts, you will now have to pay one large one once a month.
3. The terms of the consolidated loan are selected to be the most favorable in comparison with the aggregate terms for all previously assumed obligations. This will need to be taken care of by the client himself. Carefully read the new agreement, recalculate all loan amounts, conditions for early repayment, and so on.
4. Often the bank itself offers the client to consolidate all his debts, putting forward the most favorable conditions for his future loan agreement (flexible payment schedule, payment terms, reduced interest rates, reducing the amount of debt by increasing the amount of overpayment).
5. The advantage of this mechanism is that the consolidated loan will release previous obligations from collateral. At the same time, it is necessary to understand that the bank will require new guarantees for new loan obligations. In this case, you need to be prepared to provide new, equivalent and liquid collateral. Although there are often cases when a new loan was provided without collateral. This depends on the borrower's credit history and other factors.

The following facts speak against consolidation.

1. Only professionals can understand all the intricacies of this process. When concluding a new agreement, it is necessary to analyze all the client’s existing loan agreements, draw conclusions, outline a diagram and sequence of actions, write the required requests to banks, and attract the necessary credit brokers. This process may take a long time. At a certain point, it will be necessary to correctly and legally record all credit debts, issue written reconciliations, assignments and agreements with the credit commissions of all banks participating in the consolidation, and negotiate debts. It is precisely because of these difficulties, and often because of the emerging need to pay additional commissions for these services to brokers or a bank, that it becomes impractical to carry out this operation.
2. Some banks will not agree to consolidate loans if at least one of them has been overdue or fined. In this case, the client’s reputation must be impeccable. Before receiving a consolidated loan, you will need to request a personal report from the Credit History Bureau.
3. Cash is excluded from consolidation. This is not even a minus, just note that the new lender will have to make timely cashless payments and close existing loan agreements. This is what the client will need to check, making sure that he has been fully cleared of previous obligations. If a new loan is proposed to be issued in cash, and the client himself takes it to the banks, then this is called refinancing and the responsibility for it is assumed entirely by the client.

Despite all the disadvantages, for some consumers, loan consolidation can be a lifesaver that will help you deal with your debts and get rid of the risks of delinquency and save money. It is necessary to understand that consolidation will not get rid of debts, but it will certainly help to organize and control existing loans.

Consolidation is a change in the validity period of already issued loans, either increasing (usually) or decreasing. It involves easing the terms of debt repayment in the form of deferred payments and repayments. It is possible to combine consolidation with conversion.

Unification of loans is the combination of several loans into one, when bonds of previously issued loans are exchanged for bonds of a new loan. The goal is to reduce the number of types of securities in circulation at the same time, which simplifies work and reduces the state's debt servicing costs. The unification of government loans is usually carried out together with consolidation, but can also be carried out outside of it.

In some cases, the government can exchange bonds using a regressive ratio, that is, when several previously issued bonds are equal to one new bond, which relieves the government of the need to make payments on bonds in full money (interest payments and (or) redemption of bonds), previously placed in a currency that was depreciated at the time of settlement.

Deferment of loan repayment differs from consolidation in that in this case not only the repayment period is postponed, but, as a rule, the payment of income ceases.

Conversion, consolidation, unification of government loans and exchange of government bonds are usually carried out only in relation to domestic loans. As for deferring the repayment of obligations, this measure is also possible in relation to external debt. Deferment of repayment of an external loan, as a rule, is carried out in agreement with creditors, and this operation does not necessarily involve the suspension of interest payments on the loan.

Cancellation of public debt refers to the complete renunciation of the state's obligations under issued loans.

The main task of managing Russia's public debt is to change the debt strategy and move from a policy of deferring payments to a policy of debt reduction. Due to the current circumstances, this applies to the greatest extent to external debt. And here it is advisable to turn to the timely world experience of financial conversion methods for settling external debt, as the most flexible and adequate to the current state and credit capabilities of Russia.

The financial mechanism of the conversion scheme consists of eliminating part of the external debt by exchanging it for national assets - national currency, bonds, shares, goods, financial assets, etc. The following options may be the most acceptable for Russia.

Debt in exchange for exports. This does not mean export of raw materials, but export of finished products. This option allows you to support competitive production in the country, develop exports, develop new markets, and therefore preserve jobs, ensure the receipt of taxes and repayment of debts, as well as financing investments. It is important to support industries that have significant export potential (space, aluminum, aviation industry, etc.), which are already producing products that meet international standards and can contribute to the growth of the economy as a whole.

Debt in exchange for property. This option is carried out, as a rule, within the framework of a privatization program, and also involves the exchange of debt obligations for shares of privatized enterprises and the attraction of strategic investors. In this case, it is important to assess the value of domestic enterprises in accordance with world market standards, and the exchange of debt for shares should be carried out at a rate favorable to Russia. It is also important to determine the share of shares (company) in ownership during debt conversion.

Debt in exchange for taxes. In this case, it is proposed to legislatively establish such tax benefits for investors - holders of external debt, which would encourage them to invest. Permission for conversion should be granted only when making investments that are important for the Russian economy. In this case, the external debt will be repaid using future income.

Payment of interest payments on external government debt in local currency. This option is used in world practice in some cases. Payments are made at an attractive rate for creditors, but money is transferred for interest payments to special investment accounts in domestic banks, and funds from these accounts can only be used to make direct investments in the debtor's economy. All other manipulations with such funds and income from these investments can be carried out only after the expiration of the period established in the conversion agreement (at least a year later).

Debt for cash. Involves repurchasing debt at a discount on the secondary market for external debt obligations. In this case, the nominal debt is reduced and there are savings on future interest payments. The procedure for this operation is as follows: the government appoints an agent with sufficient experience in the purchase and sale of foreign debts (usually a large commercial bank) and sets a discount to the face value of the debt, according to which it is ready to buy back the debts purchased by the agent from the agent.

Debt restructuring. This method of debt management is very common in modern conditions. Restructuring refers to the repayment of debt obligations with the simultaneous implementation of borrowings (assuming other debt obligations) in the amount of repaid debt obligations with the establishment of other conditions for servicing debts and the timing of their repayment. Debt restructuring can be carried out with a partial write-off (reduction) of the principal amount.

Many of the described techniques were used in bringing Russia out of the 1998 default. In particular, we can mention such methods as: restructuring of bond loans into bonds with a later maturity; negotiating with creditors to defer payments; use of various offset schemes to reduce loan debt; attracting bank loans for payments on bonds; acceptance of bonds for tax payments, in exchange for housing certificates, etc.; repurchase of your obligations at a discount; early redemption of its obligations.

Taking advantage of the low level of prices for their obligations and the growth of their budget revenues, the procedure for repurchasing Eurobonds was carried out by Moscow and St. Petersburg. So, in 1999-2000. Moscow bought back Eurobonds due in 2000 in the amount of $220 million, St. Petersburg also made an early redemption of its Eurobonds in the amount of $80 million, and in 2001 – in the amount of $100 million.

Russian legislation, in particular the Budget Code of the Russian Federation, provides for a number of organizational methods for managing public debt. The right to carry out state external borrowings of the Russian Federation and conclude agreements on the provision of state guarantees, guarantee agreements for other borrowers to attract external credits (loans) belongs to the Russian Federation or on its behalf - to the Government of the Russian Federation or a federal executive body authorized by the Government of the Russian Federation. The subjects of the Russian Federation, whose budgets did not receive financial assistance to equalize the level of budgetary security, initially had the right to carry out state external borrowings. At the moment, a ban on external borrowing has been introduced for the constituent entities of the Russian Federation (for municipalities they were not provided for) - the corresponding amendment to the Budget Code came into force on January 1, 2002. External borrowing is allowed only to regions that already have external debt, for its refinancing within the limits financial year.