Loan consolidation 2026 – Guide to consolidation loans

If you have several expensive small loans or credit card debts, you can significantly reduce your monthly expenses with a consolidation loan. This guide explains when consolidation makes sense, how to do it, and what risks are involved.

What is a consolidation loan?

A consolidation loan is one larger loan used to pay off your previous smaller loans and credit card debts. The goal is to:

• Lower the overall interest rate – small loans usually carry higher rates.
• Reduce the monthly installment – longer repayment period.
• Simplify finances – one payment instead of several.
• Save time and effort – no need to manage multiple loan agreements.

When does consolidation make sense?

Consolidation is often worthwhile if:

• You have several expensive small loans with effective annual rates above 20%.
• Credit card balances are high and you only pay the interest.
• Combined monthly installments are starting to hurt your finances.
• You can get the effective annual rate clearly lower than current.
• You don’t want to pay off in one go but continue regular repayment.

Example: savings from loan consolidation

Starting situation

• Instant loan 1: €2,000 · 24% rate · €200/month
• Instant loan 2: €3,000 · 20% rate · €280/month
• Credit card: €4,000 · 18% rate · €150/month
• Total: €9,000 · monthly installments €630

Consolidation loan

• Loan amount: €9,000
• Effective annual rate: 8.5%
• Repayment period: 5 years
• Monthly installment: approx. €185

Savings: €445/month and significantly lower total interest costs.

How to consolidate loans – step by step

1. List your current loans

Write down the remaining principal, interest rate and monthly installment for each loan. Include credit card balances too.

2. Determine the consolidation loan amount

Sum all the debts – this is the loan amount you need.

3. Compare consolidation loans

Compare offers from different lenders for the same loan amount. Focus on the effective annual rate, not the nominal rate.

4. Apply for the consolidation loan

Fill in the application with your chosen lender. State on the application that you’re using the money to pay off old loans – this improves your chances.

5. Pay off the old loans

Once you receive the loan, immediately pay off the old loans and credit card debts. Keep proof of every payment.

Risks and warnings

Although consolidation can bring savings, there are risks:

• Longer repayment period can increase total interest costs, even if monthly installments decrease.
• New debts – after consolidating, don’t take new small loans or you’ll be back where you started.
• Collateral requirement – for larger consolidation loans, some lenders may require collateral.
• Credit record – consolidation requires clean credit records.

Frequently asked questions

Do I need a job to get a consolidation loan?

Most lenders require regular income. Permanent employment gives the best terms, but fixed-term work or self-employment may also qualify.

Can I get a consolidation loan with a payment default?

A payment default significantly complicates getting a loan. Most Finnish lenders don’t grant loans to people with payment defaults.

How large can a consolidation loan be?

Most lenders offer consolidation loans between €1,000 – €70,000. The exact amount is determined by your income and credit record.