For those facing a more sensitive financial situation, it is important to adopt some strategies to avoid over-indebtedness. This is especially relevant for those who have a lot of credits, which tends to complicate the situation. In that case, you can try to renegotiate or consolidate the credits you have. In both solutions, the objective will be to reduce the monthly installment to guarantee payment compliance. However, before making a decision you must understand how each of these options works.
Renegotiate or Consolidate Credits?
A consolidated loan allows you to combine several installments into a single one with better conditions. That is, when opting for consolidation, you pay a single credit to a single bank. The objective is for the single installment to be less than the sum of all individual installments. This is possible because the interest rate you have to pay is lower and it is also possible to increase the credit payment term. In addition, the entire credit management process becomes much simpler as you will only have to pay a single installment.
There are two types of Consolidated Credits in Portugal:
- Consolidated Credit with Mortgage – it is possible to join all your credits, including Housing Credit, as well as give the property as a guarantee of the payment of the consolidation. It is seen by the financial institution or bank as a low-risk credit and therefore it is easier to obtain a longer payment term and a lower installment;
- Consolidated Credit without Mortgage – does not include the guarantee of a property but equally aggregates all other credits into one. Compared to the above, it is not so advantageous because the payment terms are not so long and the interest rates are not so low.
To get the best-consolidated credit you must analyze which credit institution offers you the best conditions. To do this, you should pay special attention to these aspects:
- Interest: Consolidating credits is only a good option if the interest rate on the consolidated credit is lower than the average interest rate for all credits. Pay special attention to the APR offered to know all the real costs of credit: interest, taxes, and commissions;
- Payment deadline: you must do the math and understand that the suggested deadline does not mean that in the end, you will pay much more. You must accept a deadline that is advantageous to you;
- Ask for expert help: this analysis and negotiation process can be a little painful, especially for those who do not know how to negotiate with banks and do not master the subject. The ideal is to have the help of professionals to find the best solution for you. You can fill in this form to receive a consolidated credit proposal, free of charge.
Renegotiating credits is nothing more than trying to change credit conditions. For this, you should look for the bank to try to find the best option to lower the monthly installment. The main options available are:
1) Negotiate the Interest Rate
Renegotiating credits may involve trying to renegotiate the spread with the bank, for example. This reduction implies a reduction in the monthly installment, as well as in the total cost of credit. However, this is an option that can be more difficult to obtain.
2) Extend the Credit Term
Extending the credit term is one of the most sought-after solutions to alleviate the monthly installment of credits. More time to pay off the credit means a lower monthly payment. However, this also means an increase in total interest as you will be spending more time paying off the credit. For that reason, it’s important to do some math before moving on.
3) Request a Capital Grace Period
The provision of credit is composed of the principal owed and interest. When opting for the capital grace period, you only pay the interesting part for a certain period (between 6 and 24 months). After the capital grace period ends, you will have to pay the full amount of the installment again. As with the extension of the term, the entire loan will also be more expensive due to the payment of interest during the grace period.
Renegotiate or Consolidate Credits – Which is the best option?
The answer to this question depends a lot on the conditions you will be able to negotiate with the bank. You must understand that the bank is not obliged to accept the renegotiation of credits. That is, you may not even be able to opt for renegotiation. On the other hand, even if the bank does, conditions may not be the best. For that reason, credit consolidation is usually the best option. However, the idea is to start by assessing your situation and then compare the different solutions. It is necessary to understand what credits you have and their current conditions. Then everything will depend on whether or not you are already in a very delicate financial situation. For the bank to accept the consolidation of credits, for example, it cannot have installments in arrears.
It should be noted that if you are already at risk of default, then the situation changes. In this case, you can opt for the Bank of Portugal support mechanisms – PARI (Action Plan for the Risk of Default) and PERSI (Extrajudicial Procedure for Settlement of Default Situations). These mechanisms consist of the presentation of credit payment regularization plans. In simple terms, the objective is to speed up the process of renegotiating credits with the bank through the solutions that we explained to you above: extension of the term or reduction of interest rates, for example.
Finally, be sure to watch our video where we explain the strategy to renegotiate or transfer Mortgage Credit, thus avoiding the obstacles that banks usually place: