A collateral loan is a form of loan where the lender or bank will redeem your current debts and transfer them to a new, individual loan. That loan is in the form of a private loan (also known as a mortgage loan). This is a loan that is taken out completely without collateral. When you combine your existing debts and loans into a collective loan, you not only save on interest costs, but you also do not have to pay any fees and other fees separately for each loan.
The money you save can be used to pay off the loan faster. It is always advantageous to pay off the loan as soon as possible, so that you quickly become debt free. In addition, the monthly interest cost decreases as the debt decreases.
Having small debts and credit in several different places is always a worse deal than having individual, larger loans. Therefore, mortgage loans are increasingly popular and they help many people organize their finances and become debt free.
How do I get a mortgage loan?
Applying for a collateral loan involves a bit more work than just applying for a regular private loan, but it is not very complicated. First, turn to a lender offering mortgage loans. You can read our reviews to find an affordable lender that meets your needs. It is also possible to use a loan broker, which allows you to apply to several different lenders at the same time.
When you apply for collateral loans, you go through the same process as for private loans. You may enter your personal information and must comply with the bank’s basic conditions. A credit check is then made. You also need to provide information about the credits, debts and installments that you want to include in the collateral loan.
The lender will then check the conditions to settle all your debts and collate them under a joint loan. They will come back to you with a personalized offer so you can see how much money you will save. Then you sign the loan agreement and the loans are converted into a collective loan. You do not have to settle your debts yourself, but instead you authorize your new lender to do this for you – this means you do not have to deal with administration.
What is required to take out a mortgage loan?
The exact terms differ between the different banks. You can study the terms and conditions on our website to see which suppliers are right for you. Generally, the same conditions apply as when taking out private loans, ie you need a regular income from work, that you do not have payment remarks (exceptions exist) and that you are of legal age and written in Sweden. The maximum amount you can borrow and the interest rate are determined by your own circumstances, such as your credit rating, your income and your future ability to pay.
To make the mortgage loan as cheap as possible, it is important to have a high credit rating. Creditworthiness is determined by the size of current liabilities, income, possible payment remarks and the result of the credit investigation. Here are a few tips to help you lower the interest rate on your mortgage loan before applying:
- Pay off smaller debts entirely if you can afford instead of including them in the mortgage
- Use the co-applicant if you have low income or payment remarks
- Avoid applying for loans too often, as many applications lower your credit rating
What are the Benefits of Collective Loans?
Very many people choose to convert their small debts into a joint mortgage loan. Briefly, the benefits of this are the following:
- You get a lower interest cost even though the total debt is the same
- You save money on administrative fees
- Instead of several different invoices that risk being missed, you only receive one invoice each month
- The money you save can be used to pay off the debt
- You become debt free faster
Which Lenders Offer Collective Loans?
Many of the lenders offering private loans also have collateral loans in their range. The Highlend Credit Comparison Service allows you to apply for private loans of up to USD 500,000, which can also be used to collect your existing debts and credits. Read our review of Reading here. The loan broker Freedomlend Finance also offers corporate loans at a slightly higher amount, up to USD 600,000.