Many of the people who are overwhelmed by the pressure of their debts, could well put an end to their hardships through something called “debt reunification” and much publicized lately by non-banking companies. What is offered consists of unifying all the debts that can now involve different contracts, with different entities and at different costs or interest rates, under a single loan or credit. Something, which is very normal and common in many Spanish homes.
That is, the mortgage, the letter of the car, the personal loan for the reform of the house, the purchases made with the credit card, etc… However, be very careful with this of the “reunification of the debt”. Where is the benefit? Well, something as simple as paying less per month, but for more months. That is to say, behind the Reunification of the Debt there is the extension of a mortgage or the opening of a new one, with what happens to have a single installment, which is usually lower than what was previously paid for all the debts.
However, that lower fee will be paid for a longer period of time and, consequently, who always wins is the same: The Bank. Well, it is clear that the client or consumer also wins if what matters at a certain moment is paying less per month, even for more months. But that lightening of monthly money is not free, far from it. By lengthening the life of the loans one ends up paying much more in interest. The total cost can be increased by 80%, which in practice can mean paying the bank 472,000 euros for an initial debt of 197,000, that is, 275,000 euros of interest and other expenses.
Reunification of Debt
So that no one is wrong with this of the Reunification of Debt, the Bank of Spain has provided advice to users in their Banking Client Portal, that when analyzing this operation, pay special attention to the total expenses of the operation, since these operations have processing and formalization costs; the credits that are canceled usually apply commissions or penalties for early payment; the modifications in the mortgages entail notary expenses, registration and taxes, and the opening of a new one entails other commissions and new disbursements. Within the financial sector this business is beginning to be pointed out as the closest thing that there is in Spain to subprime mortgages in the United States.
Its proliferation has caused alarm and has led the Ministries of Economy and Finance and Health and Consumer Affairs to try to regulate them. Currently, a bill is being processed which will oblige financial intermediaries, (a sector that has grown as the foam in recent years in Spain, according to data from Tormo y Asociados, currently operating 53 companies that they have 5,710 establishments) to sign up in a register and, above all, to detail the cost of their services well to customers. One of the objectives of this regulation is to try to make them more transparent. In many cases, the costs of the fees are included in the unified debt and the user does not even know that he is paying up to 10% for the services received. The fees depend on each entity and operation, but they are higher than in financial institutions.