Asufin experts warn that extending the term to get a lower monthly payment also increases interest costs
The difficult economic situation caused by the energy crisis has brought the family budgets of many households under control, especially those of those who have not yet left the impact of the pandemic on their wallets.
In this scenario, families are increasingly turning to personal loans or credit cards to cover their daily expenses, including the mortgage. A short-term solution to liquidity problems, but which in many cases has led to over-indebtedness which they are now trying to solve through debt reunification. This type of operation basically consists of grouping all the debts of a home under the umbrella of a mortgage.
According to the Association of Financial Users Asufin, a total of 800,000 families have resorted to these operations this year, 55,000 more than last year. It is a solution that has the goodness of drastically reducing the monthly installment payable for all debts incurred, but can incur huge additional costs in the long run due to the assumed interest burden.
This is one of the main conclusions of the III Asufin study on debt reunification prepared by the study department of the association in collaboration with the expert Luis Gallardo and which will be published in the coming days.
The company has analyzed the reunification operations of several non-banking entities operating in the market. And the average reduction in the monthly fee to be paid achieved through them is remarkable: 75.2%.
The analyzed example contains an original debt of 121,410 euros, which includes mortgage debt, cards, personal loans. From there, the interest cost on the initial debt is analyzed and compared with that of the selected reunification entities, in accordance with the theory that the mortgages on which all these debts are “grouped” by the entities allow to reduce the monthly fee, but in exchange for a high long-term interest rate.
“The main problem with this kind of operation is that the extension of the term increases the cost of interest: far from eliminating debt, as it seems, it increases it,” they warn of Asufin.
For the examples of the analyzed entities (with real operations), the result is an average additional cost of the reunification operation of 71,000 euros, which means that the interest that would be paid on the initial debt must be multiplied by three. This is the result of subtracting the cost of the original debt of the analyzed example, of 21,091 euros, from the average cost to reunite it, 92,110 euros.
The reason? The average rates for reunification are much higher than the market rates. In the analyzed cases, the average rate for the mortgage used for reunification is 3.9%, compared to 1.20% against which the Euribor was quoted in August, the reference month for the examples in the study.
According to the conclusions of the study, the bank card is the most common debt in the reunification, present in 92.30% of this type of operation. It is followed by personal loans, which appear at 76%, and mortgages at 59.2%. However, the ones that are growing the most this year are mini-credits.
Another problem that the experts have discovered is that more than half of those surveyed think they would save money with the surgery. The percentage is rising from the 48.3% who thought so the year before. “The reality is that this sense of savings is a mirage, because the total cost of repaying all the loans has multiplied by three,” they insist of the association.
Source: La Verdad
I’m Wayne Wickman, a professional journalist and author for Today Times Live. My specialty is covering global news and current events, offering readers a unique perspective on the world’s most pressing issues. I’m passionate about storytelling and helping people stay informed on the goings-on of our planet.
