It is one of the financial solutions that has more names: “reunification of debts”, “refinancing of loans or credits”, “grouping of loans” … They are one of the many ways to call a solution to reduce our payment burden.
If you are burdened with your loan installments at the end of the month, a loan refinancing can be a solution to lower your monthly installment. The explanation is easy, the hard part is being able to do it.
What is a debt reunification?
A debt reunification is an operation that consists of grouping all your loans into one . In this way we relieve our financial burden by reducing our monthly fee.
For a period of time, we have been charged with debts and loans and as a result we do not reach the end of the month.
Normal economic situation of a person who is going to need a debt pool.
Regardless of the percentage of interest that each loan has, if we value our monthly income around € 1,800 / month, our debt effort rate is 73% (quite high).
These data show that, without counting the typical expenses such as food, travel, leisure, etc., the chances that once our expenses exceed the income are very high, with the risk of being able to enter an economic bankruptcy difficult to resolve.
So if your mother is not Angela Merkel, she won’t rescue you or God (sorry to make me so sarcastic).
The theory to make debt reunifications is very simple, we get a bigger loan and cancel all the previous ones. But you have to start thinking logically to avoid being deceived.
If in the previous example we assume that the total debt can be € 85,000, we will not ask for a personal loan of € 90,000 for example. A debt reunification loan is usually made through a mortgage loan. The reason?
As you can see, the grouping of loans means a reduction in monthly spending, but the term to pay off said debt increases.
Therefore, in summary, a refinance of debts decreases the monthly installment but increases the total debt time.
What documents must be submitted
Before submitting your debt reunification file with a bank, you need to know what documentation you must submit.
First of all we have to order and document all our debts cards, loans, mortgage, etc. Generally, the financial company that performs the refinancing will ask you for the last 3 receipts of each loan .
When we have our well-documented debts we must contribute our monthly income:
- Employees: 3 last payrolls, income tax declaration, working life, and employment contract, account movements 6 months.
- Autonomous: VAT declaration, personal income tax, previous year, working life, account movements 6 months.
- Pensioners: Income Tax Return, Annual Social Security Income Report, account movements 6 months.
* For each particular case the manager can request some additional document.
After demonstrating our income and having the bank verify our ability to pay, we will have to provide the property data on which we will charge the debt reunification, providing your deed of ownership and your simple note.
Once we have submitted all the documents, we can already make a feasibility study of our operation.
Summary of documents to submit
- Debt Collection
- Income Demonstration
- If we provide AVAL of Property (Simple Note, Deeds)
Loans for debt reunification: How much money can I ask for?
This is the question that people ask the most.
In the case that we make a group of loans without a mortgage, the total amount that we can request will depend on the income we can prove. But as we have commented previously, we will only deal with the reunification of debts with mortgage loans.
In a group of mortgage loans , debts of up to 80% of the VTM (market appraisal value) of the property to be mortgaged can be refinanced.
If a property has an appraisal of € 100,000, the amount we could obtain with this property would be € 80,000.
Starting from the amount that we could obtain, we would have to calculate the amount that we would have to reunify, if the amount to be reunited is less than the allowed amount, the operation is viable.
Expenses of a Debt Reunification
Before knowing how to value a group of debts, you must know that this operation involves a series of expenses.
Keep in mind that the main procedure is a mortgage loan, which carries the typical expenses of a mortgage: notary, agency, registration, taxes, legal acts, etc. But each case is a world and the mortgage may be an extension, the loans to be paid have a cost, there may be registration charges, that is, each case may have several variables.
The usual cost of a mortgage for debt reunification can be 10% of the debt to be refinanced (I said approximately, it may be less).
All these added costs are not required to pay in advance, they will be incorporated into the loan pool mortgage.
What happens if I already have a mortgage on my property
You might be interested in making a debt reunification loan and it turns out that the property you are going to use as collateral to group loans is already recorded with a mortgage.
Can I make a debt grouping when I already have a mortgage?
The answer may seem ambiguous. It depends.
What does it depend on?
Do you remember the 80% mortgage charge rule? Well that depends on that rule.
If you currently have a mortgage on a property, the amount of the same in relation to its market value will determine the possibilities of refinancing.
Remember that 80% of an appraisal value must be subtracted from the current amount plus the debts you want to group. If the sum of all of them does not exceed the famous 80% then we have reunification.
Refinance debts with Good Lender
To make a debt refinancing as an indispensable rule is not to be in the Good Lender. Having Good Lender is like having leprosy in the Middle Ages: nobody will want to have you by your side and less a financial entity.
In order to reunify debts with Good Lender you will have no choice but to pay the Good Lender and then ask for a loan to reunify debts.
If this is your case you will have to resort to a friend / relative who lends you the money or in the worst case, go to a private equity loan.
Having been bad boys and being registered in delinquent lists can lead us to have to suffer more costs for performing a debt refinancing operation.
What happens if I don’t get help from friends and family?
This is where private investors (lenders), loans between individuals and other financial fauna that specialize in this type of cases enter the scene.
All these private equity solutions require a property free of charges as collateral.
If you are in the situation of providing that property, the private equity credit will pay your Good Lender and you will clean your file to be able to access the loan to reunify debts.
The costs of a private capital operation are high , so this situation will only be recommended for high Good Lender debts and over € 6,000.
God catch you confessed if you don’t find a good professional for this kind of business. What in principle was a “good idea”, grouping your loans into one, can become a real hell in life.
Therefore, in this type of case it is advisable that you get advice from a good professional in the field of private equity loans.
Refinance credit card debts
An uncontrolled use of our cards can lead to the need to refinance credit card debts. Credit cards are a good ally if we know how to control spending, but they can also be a big problem.
There are financial companies that allow us to refinance debts of our credit cards by grouping them all into one.
To be able to do it, it must be taken into account that it would be convenient if you did not have delays or defaults and that of course you are not on a list of delinquents such as Good Lender.
The method used is similar to that of a loan group and the documentation requested is more or less the same.
Banks to Gather Debts
When we seek to reunify our debts as a solution, the first option should be the bank we usually work with the most.
They have our file and know exactly our monthly income and our expenses.
But sometimes our usual bank denies us the solution of reunifying our debts with a loan.
The banking business is usually quite cyclical.
When one has the tap closed to make loans to reunify debts, another has this solution open.
At present there are entities that do not offer loans for reunification. If you are in this situation you will have to contact a financial agent that is related to the entities that do this type of operations.