It is more common than we think there are families that, from one moment to the next, find themselves drowning in credits in such a way that the salary, when it arrives, is immediately cut in half or more. Car, vacation, cell phone, home appliance credit ...
In 2008, we were faced with the inefficiency of the banking system in allocating credits to families unable to pay them. Today, we are faced with a sudden cut in income caused by the confinement imposed by the pandemic of the new coronavirus.
Although we are talking about very different situations and at totally different times, the truth is that either due to job loss or even lay-off measures, household income has been affected. Between March and May this year, DECO alone received 3.600 requests from families to whom it provided financial advice, and opened 234 intervention processes, almost 60% of which were due to a drop in income.
On the other hand, the most recent data from Banco de Portugal indicate that the indebtedness of individuals reached, in July 2020, 140 billion euros. This data in itself is not necessarily worrying, with the ability to pay the credits.
In fact, compared to July 2011, in which the value amounted to 165 billion euros, we are talking about an important decrease. Even so, with a sudden bank, it is important that families know how to react and how to organize their finances.
Thus, in the face of a situation of financial distress, it is necessary to start making accounts, since the credits are requested, approved and deposited and the products are purchased and there is no way to return them.
Credit consolidation may seem like a big swear word, but it is nothing more than taking out one credit in order to be able to settle all the others, paying only one monthly payment, subject to only one interest rate. However, it is necessary to pay attention to some differences in modalities:
- Renovation: this modality consists of changing the conditions of the financial entity where the credit is held, and is subject to that entity allowing to negotiate an exchange of conditions. Generally, it allows the extension of the term so that the monthly fee is reduced.
- Consolidation: this option involves asking for a loan of an amount that allows all loans in progress to be repaid, in order to be able to settle credits, by paying all debts at once, leaving only one credit with more favorable conditions. The main objectives of a consolidated credit may vary, but they are generally: reduce / increase the return period, reduce the monthly fee, reduce the associated interest rate (since the interest on a credit card, for example, is generally higher higher than those of a consumer credit) and the convenience of having only one active credit.
- Subrogation: this modality is not very common. It assumes a change of entity, in case the bank where you have the credits does not want to trade. In this way, the debt passes to a new entity that improves the conditions to adapt them to the client's needs.
Among these three options, consolidation is the best one that adapts to most situations, since it is usually possible to have only one credit. By slightly extending the payment term (whatever a year), or by taking out a credit subject to a lower interest rate, families are automatically financed more organized, with a single payment plan and a more stable financial situation.
Younited has been in the Portuguese market for almost three years and, through the data it has access to, we can see that the Portuguese are unfamiliar with the importance that a credit consolidation project can have in financial protection.
If before the pandemic, requests for credit consolidation were around 24% in relation to other applications, now that value has dropped to 20% and is between 20% to 30% below what happens next door, in our neighbor Spain. This is a trend that we believe will be reversed in 2021, as Portuguese families will look for solutions to alleviate their monthly budget, looking for lower interest rates or a lower total cost of credit.
The fear of a slow economic recovery after the pandemic will lead the Portuguese to think about these solutions because, it is worth reaffirming, the consolidation of credits can be the salvation of many families.