Consolidating your loans: when it helps and what it costs

Several loans running, each with its own payment, its own debit date and its own rate: consolidation promises to replace them all with a single loan and a single monthly payment. The idea is appealing, but it is a financial operation in its own right, and it has a cost. Here is how to look at it clearly.

What consolidation does

Consolidation replaces several existing loans (car loan, consumer credit, credit card, sometimes a personal loan) with one new loan. The new loan is used to repay the old ones, and you pay only one monthly instalment.

Two forms exist. Instalment consolidation is based on a classic loan, with no security on a property. Mortgage-backed consolidation is secured by a mortgage on your home, which generally allows larger amounts to be consolidated and the repayment to be spread over a longer period.

When it helps

Consolidation makes sense in a few specific situations. The first is when your monthly budget is strained by a pile of small payments, while your income is stable and you can sustain a single, lower payment. The second is when some of your loans carry a clearly higher rate than what you could get today, for instance cards or revolving credit lines. The third is when you simply want clarity: one loan, one due date, one point of contact.

Conversely, consolidating to repay loans that are close to ending is rarely a good idea. You would be swapping a debt that will soon disappear for a longer one.

What it really costs

This is the point to understand well: the monthly payment falls, but the total cost is often higher. The reason is mechanical. To bring the payment down, the repayment is spread over a longer period. The longer the term, the more interest you pay overall, even if the new loan's rate is fair.

Costs come on top: file fees, a possible early repayment indemnity on the loans being closed and, for a mortgage-backed consolidation, the notary's deed costs, meaning the mortgage registration with its duties and fees. They are not always visible in the advertised rate, which is why you should look at the APR and the total cost of credit, not just the monthly payment.

Mortgage-backed or instalment

Mortgage-backed consolidation often offers a lower rate than an instalment loan, because the lender holds security. In return, your home answers for the repayment, and the notary costs are higher. It also requires owning a property of sufficient value.

Instalment consolidation is simpler and cheaper to set up, but its rate is generally higher and its term shorter, which limits the amounts that can reasonably be consolidated. The right choice depends on the sum to consolidate, the value of your property and the time you need to repay without putting your budget at risk.

Do the sums before deciding

Before any commitment, lay out your current loans: outstanding capital, rate, monthly payment, end date, any exit indemnity. Then compare the total you would pay by keeping them with the total you would pay with consolidation, costs included. If consolidation costs more, ask yourself whether the monthly relief is worth the difference. Sometimes it is, sometimes it is not, and it is normal for the answer to be nuanced.

Any loan must be repayable without weakening your budget.

One last reflex: consolidation does not by itself solve whatever led to the loans piling up. If new spending rebuilds debts once the old ones are cleared, you end up with the consolidation and new loans on top. Talk to us frankly about your budget: we would rather tell you that consolidation makes no sense in your case than sell it to you for nothing. Sometimes simply reworking a single loan is enough.

To put figures on your situation, run a simulation on our website, or book an appointment at the Passage Charles Rogier in Brussels or by video call: we compare your current loans with the offers from our lenders and show you the difference in euros.