Many households in the Czech Republic are grappling with financial strain and are turning to loan consolidation as a practical solution to consolidate their budgets. This approach allows individuals to combine multiple loans into one, leading to monthly savings of hundreds to thousands of korunas.

The rising demand for loan consolidation has prompted most banks in the country to offer refinancing options. In fact, mBank has reported a significant 20% increase in consolidations compared to the previous year, and other banks are also witnessing similar trends.

Consolidating loans enables borrowers to secure more favorable interest rates and save on fees associated with multiple loan products. Additionally, it provides the flexibility to extend the repayment period, resulting in reduced monthly installments, although the overall repayment amount may be higher.

Some banks even go the extra mile by offering lower interest rates or forgiving several loan installments. Česká spořitelna, for example, has implemented such measures, providing potential relief to borrowers. According to spokesperson Filip Hrubý, “If the client makes regular repayments, we may forgive up to fifteen installments, depending on the loan amount and repayment period. This reduces the effective interest rate.”

While the government focuses on cost-saving measures, individuals are exploring the option of borrowing €45 billion from the EU. This further emphasizes the need for financial consolidation among households.

Both existing and new customers are actively considering loan consolidation as a means to reduce their monthly payments and gain a better overview of their finances through a single installment. Zuzana Filipová from Moneta Money Bank highlights the advantages, stating that consolidating loans allows individuals to “reduce their monthly payments and gain a better overview of their finances through a single installment.”

Most banks in the Czech Republic do not impose limits on the number of loans that can be consolidated. This includes major banks such as Česká spořitelna, Komerční banka, UniCredit Bank, and Raiffeisenbank. While Raiffeisenbank consolidates only traceable obligations, mBank allows customers to consolidate up to ten products, provided they have made at least four repayments. Air Bank goes even further, allowing customers to transfer up to twenty loans simultaneously, subject to specific criteria.

Loan consolidation encompasses various types of loans, including consumer loans, bank, and non-bank loans, revolving loans, installment loans, payday loans, or leasing. However, mortgages, loans from building societies, and business loans cannot be consolidated. Banks also decline consolidation requests if any of the included loans are overdue.

Before granting a loan, banks must assess a client’s creditworthiness. If a client is unable to repay existing loans, additional credit cannot be granted, in compliance with the Consumer Credit Act.

Loan consolidation in the Czech Republic typically involves consolidating amounts ranging from hundreds of thousands to millions of korunas into a single loan, with a maximum repayment period of 120 months or ten years.

Incentives for prompt repayments are also offered by certain banks. Air Bank, for instance, provides clients with two interest rates: an introductory rate that determines the monthly installment and a bonus rate that determines the final repayments. Qualifying for the bonus rate requires making timely and regular payments, avoiding delays exceeding five days, or exceeding the normal installment amount by over CZK 10o.

Article by Prague Forum