A Few Words About Loan Consolidation

Loan consolidation is not a simple process.

Anyone who reaches the point of approaching an advisor for loan consolidation is already in a somewhat problematic situation, and it's advisable to handle the loans as quickly as possible.

As long as banks and credit institutions approve various loans with a click - none of us approaches an advisor because, after all, an advisor costs money and none of us wants to pay money unnecessarily, which is very logical.

What Actually Happens in Loan Consolidation?

The advisor, with their connections at banks, secures one large loan to close all existing loans. This loan needs to be on better terms than the existing loans, otherwise we haven't achieved anything.

For example - let's say we have:

• A loan of 200,000 ₪ at our bank for 5 years at 10% interest
• Plus 70,000 ₪ with credit card companies for 4 years at 12% interest
• Plus overdraft and credit card limits of 50,000 ₪

In such a situation - we have a total debt of 320,000 ₪ and we're paying close to 6,100 shekels per month. There's no doubt this is a very difficult situation and paying the debts heavily burdens our monthly cash flow.

If we consolidate the loans, our monthly payment will drop to around 3,800 shekels, which will of course make things much easier.

Where's the Problem?

The advisor is not a magician. True, they have connections at banks, but they can't secure money in complete contradiction to their policies. So the question arises: What is the banks' policy regarding credit approval?

Generally: banks love good clients, there's no getting around it. Who are good clients?

• First – those who haven't had bounced payments in their account (card charges, standing orders). And if they did - you need to tell a good story that "passes with the bank" and convinces them to grant credit despite the bounces.
• Second – banks really like salaried employees, preferably with stable and good employment. Permanent staff, government employees, teachers, etc. This doesn't mean other employees or self-employed can't get loans, it's just an example of the "ideal client" from the bank's perspective.
• Lastly – banks usually give up to 15 times the net income. That is - if I bring in 10,000 net per month - I'll get up to 150,000. If I bring in 20,000 net - up to 300,000, and so on.

When will they give more?

• First - if I have good and stable employment - the branch manager can use their discretion and recommend an amount exceeding 15 times.
• Second - a guarantor added to the loan - helps a lot and can also increase the amount.
• If the borrowers have property - it helps tremendously.

You need to understand the banks' mindset - one of their concerns is that the borrower will declare insolvency and won't pay their debt. If they have property, even if the bank doesn't mortgage it - the borrower can't really declare insolvency and "escape."

The Advisor's Role

This is where the advisor comes in. First - they know how to present the borrowers to the banks in the best way. Second - they know which branches, of which banks they can work with. Where there's a branch manager who wants to help and where there isn't.

Another very important point – loan consolidation is not a magic solution. If we earn 20,000 per month, have expenses of 25,000 plus loan payments of 5,000 per month - even if we consolidate the loans and reduce the payments - we'll still be in negative cash flow and it's only a matter of time until we accumulate additional debts.

Therefore - loan consolidation must be part of an overall plan to improve cash flow, either by increasing income or reducing expenses.

So How Do You Consolidate Loans?

• Tell the advisor the complete story and don't leave anything out, otherwise they won't be able to help.
• Transfer the documentation according to the list below.
• A decent advisor - charges payment only on a success basis. Anyone who charges an "advance," "earnest money," or "file opening fee" - I recommend not hiring their services because in many cases advisors don't succeed in securing the credit.

What If We Can't Secure Credit?

What do we do if we didn't succeed in securing credit and consolidating loans? If we don't meet the banks' criteria?

In such a case - we'll probably go for better restructuring of the existing credit so that the final result will be the same - the payment drops significantly. Some advisors also work in this area. It's important to understand that from the advisor's perspective there's much more work here, so their fee will be higher.

Another important thing to understand - they may succeed in restructuring the debt with some institutions and not succeed with others. You need to finalize all the details with them in advance to prevent misunderstandings later.

What Documentation Is Required?

• ID card both sides + appendix for all debtors
• Last three pay slips for all debtors
• Three months' bank statements for all accounts for all debtors
• Credit data report for all debtors

Good luck and if you have questions - feel free to contact us

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