Debt consolidation through secured loans could be seen as a way of increasing the level of awareness and financial education among customers, because they already have the experience of previous loans, thus beginning to have better knowledge of the banking market.


The difficult economic situation nowadays makes credit growth by means of attracting new clients a fairly remote possibility. Debt consolidation is an “ace up the sleeve” of banks in this period and it can help strengthen the relationship with each customer. In the future, because of the fact that the already existing monthly debt will be lower and there will be a growth, customers will have additional opportunities to contract new loans. The premises of crediting revival are now being created. This idea is shared by most representatives of the banks precisely because reducing the degree of debt leads to a portion of income which can be dedicated to investment or consumption.

The main reason why a customer is resorting to debt consolidation is the need to lower the monthly financial obligations, given that few are able to pay their loans in full in advance. Refinancing advantages are obvious. But it must be said that in some cases, at the end of the lending period, the customer pays more, because the repayment period increases.

Nevertheless, debt consolidation does not necessarily mean increasing the repayment period. It mainly means a better interest rate than that which the customer contracted a few years ago. For example, a customer may want to keep the same repayment period and to decrease the rate. It is possible for him to consolidate his debts (he may have a credit card, a personal loan and a mortgage) and choose the version of secured loans in order to obtain a lower monthly rate.

Another important advantage of refinancing is that through consolidation, which brings cost reduction, the client is switching from unsecured personal loans with high cost, to secured loans with much lower costs.

There are also some risks associated with debt consolidation - for secured loans it is important to take into account the current value of the collateral compared to the total value of the loan to be consolidated, so as not to pay the cost of an evaluation without having real chances of approval of refinancing. At the same time, customers who contract a new loan for a longer period of time may end up paying a larger amount of money, but these customers are facing financial problems and need a solution now. Their main concern for the moment is to lower their rate. In the future, if their financial situation improves, they can make an advance payment, with no fees involved, and may reduce the credit period so that the total sum should lower.

To sum up, there are a lot of advantages and disadvantages on both sides – the lenders and the borrowers. But overall, signing a contract for secured loans for debt consolidation could be a real solution for the problems both sides are facing. Everybody is happy in the end – the bank gets a customer and the client reorganizes his financial responsibilities to his advantage.
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