Consolidation Loan Case Study

Consumers who experience difficulty in repaying their current loan instalments often seek a consolidation loan to reduce and consolidate their monthly instalments. The benefits of a consolidation loan are dependent on the type of debt the consumer has. Generally, those with high levels of short-term debt will receive larger instalment reductions.

Mohammed has been experiencing challenges in repaying his debt for the past few months. He approaches Vantage to see how they can assist him with his debt challenges. The consultant at Vantage conducted a detailed assessment on Mohammed’s financial position and the following was concluded:

Mohammed’s net income: R25 000

Mohammed’s total monthly expenses: R11 000

Mohammed’s current total monthly debt repayment: R17 609

Mohammed’s current debt profile is shown below:

 

Credit Provider Current Balance Current Instalment Remaining Term (Months) Current Interest Rate
Wonga R 6 000 R 6 300 1 60%
Bayport R 15 000 R 1 425 12 25%
ABSA R 25 000 R 1 272 24 20%
Capfin R 8 000 R 8 200 1 30%
Truworths R 4 500 R 412 12 18%

After reviewing Mohammed’s profile, Vantage found that he has a monthly shortfall of R 3 609 (Income minus Expenses minus Debt Repayments). Although this indicates he is overindebted, the total debt Mohammed has is quite low relative to his net income. In addition, most of his debts are short term, which suggests that a consolidation loan could be a good solution. Mohammed also has a very good credit score which increases his chance of getting a consolidation loan.

Therefore, Vantage recommended Mohammed to approach Bank X to apply for a consolidation loan. Bank X approved the consolidation loan and paid a lump-sum of R58 500 to his account. Mohammed used this amount to settle all his accounts and now he only has one loan remaining.

 

Credit Provider Current Balance Current Instalment Remaining Term (Months) Current Interest Rate
Bank X R 58 500 R 2 357 36 26%

 

Now Mohammed only needs to pay R2 357 per month towards Bank X, this is R 15 252 less that what he needed to pay previously. This consolidation loan has improved Mohammed’s cash flow significantly.

It is important to note that in most cases, consolidation loans only help consumers to reduce monthly debt repayment when they mostly have short term debt with high interest rates. If you have assets or long-term debt, this solution may not be the best for you.

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