AZE.US
Combining several loans into one can ease pressure on a household’s monthly budget, but a longer repayment term can make the debt more expensive overall.
Banks may offer a new loan to repay several existing obligations and consolidate them into one payment date. The refinancing package can include remaining balances on car loans, electronics purchases or other consumer debts.
Banking specialist Ismail Mammadov said consolidation may be convenient for borrowers managing several repayment schedules, but whether it saves money depends on the terms of the new agreement.
How a Lower Payment Can Cost More
Consider a hypothetical remaining balance of 10,000 manats at an annual interest rate of 18%, with equal monthly payments.
Over 24 months, the monthly payment would be about 499 manats, producing total payments of approximately 11,982 manats.
Over 36 months at the same rate, the monthly payment would fall to about 362 manats, but total payments would rise to roughly 13,015 manats.
In that example, reducing the monthly payment would cost the borrower about 1,033 manats more. The calculation does not include commissions, insurance or other charges.
Borrowers should compare all payments that remain under their existing loans with every payment required under the proposed refinancing plan. The annual rate, term, fees and effective annual percentage rate should all be checked. Azerbaijan’s Central Bank provides a standard disclosure form for consumer-credit terms.
Refinancing can save money when the new agreement genuinely reduces the borrower’s remaining total costs. A smaller monthly payment alone does not establish that it is cheaper.
Source: Vesti Baku.