A personal loan to pay off a credit card debt can be a good business opportunity. And it has nothing to do with being in default.
A few days ago a neighbor asked me for advice: he had received an offer from his bank to buy his credit card debt. I was scared. He had a card, but it wasn’t with the bank, but with a store.
He was organizing his new apartment and almost all the purchases of the last months had been made with the store card.
The neighbor, Antonio, wanted to know why his bank made this offer and, of course, how convenient it was to accept it.
Antonio’s case is more common than we think. Financial institutions have an arduous commercial management. Making your customers prefer all your products is one of them.
Why did the bank offer a personal loan to buy credit card debt?
Surely, the bank observed in the reports of the central of risk that Antonio had business with the warehouse; that his rating was “normal” (he always pays the card fee on time); and that, under these conditions, he was a very valuable customer to offer him a new product; a personal loan
Therefore, they indicated that they could have a loan with these general conditions:
- Amount from S / .1,000 in soles or its equivalent in dollars
- Term of up to 60 months
- Preferential rate from 18% per year
Would it be worth paying the credit card debt with that personal loan?
In principle, it was worth finding out more!
Antonio showed me his credit card statement. It should S /. 3,500 and I was paying some purchases at rates above 50% and 70%. For that reason alone, Antonio would make a big change in his life: he would pay less interest for his debt.
It would have a little more liquidity.
Obviously, the news hit him. It was time to act.
What should I do?
In general, these types of operations are fast. In Antonio’s case, the loan was already pre-approved and what was required was to formalize the application.
- Fill out and sign the application.
- The bank would review the situation of Antonio and his wife to verify the rating at the risk center.
- Deliver copies of ID
- Update financial information (income)
- Update work information (demonstrate stability between 6 and 12 months)
- Credit Card Account Statement
The most important thing was to decide the term in which you wanted to pay the loan.
Before making the decision, I recommended you go to an advisor to evaluate what other conditions, expenses and commissions the personal loan would have and make a good financial evaluation.
At the cost of the annual effective rate (TEA), the cost of sending correspondence (or choosing to send the virtual account statement) and the deduction insurance are due. Of course, you have to check if there are more conditions or benefits.
Once, sign, the bank will be responsible for paying the credit card debt of the store and Antonio will be free of that obligation. You will continue paying a new loan with better conditions.
To stand out
The important thing in this case is the difference in the interest rate! And, the fact that Antonio and his wife were paying their obligation. They will feel the difference month by month, which will allow them to continue investing in their department and cash.
Of course, a smaller fee would be even easier to pay.