Consolidation Loan

A consolidation loan replaces several existing credits with one. The new lender pays off the old balances, and from that point there is a single agreement, a single rate and a single due date. Nothing is forgiven: the same principal is simply moved under new terms.

It suits a situation where the credits are still being paid on time but the total monthly burden has become heavy, and where the old credits carry higher rates than the new one. Its purpose is to reduce the cost and restore visibility — not to create new borrowing capacity.

It does not suit a situation where the monthly budget is structurally short. If income does not cover ordinary living costs, consolidation moves the problem rather than solving it, and free debt counselling is the better first call.

Before applying for new credit, it is worth knowing a few fixed figures and what free assistance exists in Finland.

An illustration of the effect: four credits totalling €12,000 at an average 18% with combined instalments of €560 a month. The same principal as a single 12% loan over 48 months means an instalment of roughly €316. The monthly burden falls clearly — but if the new term is longer than the old ones, interest is paid for longer. These are our own calculations, not an offer.

Source: Finlex — Consumer Protection Act 38/1978, Interest Act 633/1982, Credit Information Act 527/2007, Act 57/1993; free counselling via oikeus.fi and takuusaatio.fi. Checked 4 August 2026.

A consolidation loan does not remove debt. It replaces several debts with one: a new lender pays off the old credits, leaving a single loan with one rate, one monthly payment and one due date.

Three things that change

• The interest level. Expensive small credits are replaced by one larger loan, which is typically priced lower. Bigger amounts are almost always priced better.
• The fee structure. Five account fees become one. That alone can be €20–30 a month.
• Manageability. One due date a month reduces the risk of a late payment and the reminder and collection costs that follow.

One thing that does not change

The amount of debt stays the same. If extra money is drawn during the consolidation, the debt grows. This is the most common way a well-started consolidation turns into a loss.

A consolidation loan is therefore a restructuring, not relief. It works when the capacity to pay exists but the structure of the credits is unfavourable. In Finland the product is sold under several names — lainojen yhdistäminen, järjestelylaina — but it is an ordinary unsecured consumer loan whose stated purpose is repaying older credits. There is no separate loan type and no special legislation attached to it.

The saving is calculated in euros, not as a change in the monthly payment. The calculation has three steps.

Step 1: the current position

For each existing credit note the outstanding principal, the rate, the monthly payment and the estimated remaining term. Add up what you will pay in interest and fees until they are cleared.

Step 2: the new loan

Do the same for the offer: total amount, APR, term, monthly payment and total repayable. Include the arrangement fee and any costs of closing the old credits.

Step 3: compare

Compare the two totals. If the new one is smaller, the consolidation saves money. If it is larger, it only lowers the monthly payment — which can be justified, but the decision should then be deliberate.

The example shows the effect that most often goes unnoticed: the rate fell, the payment fell — and the total cost still rose, because the term stretched from 42 to 60 months. Taken over 42 months instead, the same loan would clearly reduce the total. The term is the single most important variable in a consolidation.

Consolidation is neither automatically good nor automatically bad. It depends on the starting position.

It pays when

• There are several credits and their rates are clearly higher than the new loan’s rate.
• Monthly fees accrue separately from many credits.
• There are so many due dates that payments occasionally slip.
• The term can be kept the same or shortened.
• The goal is clarity and a lower total cost.

It does not pay when

• The existing credits are already cheap — a mortgage, for instance, does not belong in a consolidation.
• The term stretches considerably without a real need.
• Extra money is drawn for spending at the same time.
• Old limits stay open and fill up again.
• The problem lies in repayment capacity, not in the structure of the credits.

The borderline case

Lowering the monthly payment is sometimes justified even when the total rises — for example if income has fallen temporarily and the alternative is a payment default entry. That is a conscious trade, paying for time. It is a different thing from believing you are saving. In such a case agree the shortest term whose payment is still manageable, and make extra repayments as soon as the situation eases.

In practice, unsecured consumer credits are the candidates.

The rule of thumb: consolidate only debts whose rate is higher than the new loan’s rate. Moving cheap debt into a more expensive product always loses money, even if it simplifies payments. In practice this means quick loans, card balances and small consumer credits — not secured loans priced at the bottom of the market.

The same amount of debt split across several credits almost always costs more than the same amount as one loan. There are three structural reasons.

Fixed fees multiply

Every credit carries its own account or invoicing fee. Five credits at €4 a month is €240 a year in administration alone. Consolidated, the same debt costs €48–60 a year. None of this shows in the interest rate.

Small amounts are priced higher

The lender’s cost of processing and administering a credit is roughly the same regardless of size, so small credits carry structurally higher rates. Three €3,000 credits normally cost more than one €9,000 loan, even from the same provider.

Short terms and overlapping instalments

Small credits are typically agreed on short terms, so instalments are large relative to the amount. When several such instalments fall in the same month, cash flow tightens and the risk of a late payment rises. Each late payment brings reminder fees and default interest that no original calculation included.

In practice consolidating four or five small credits reduces the annual cost by hundreds of euros through the fee structure alone — before any difference in interest rates is counted. That is what makes consolidation worthwhile, provided the term is not stretched at the same time.

The most common reason a consolidation fails is not the loan but what happens afterwards. If the old limits stay open, they fill up again — and the debt soon doubles.

What to do after consolidating

1. Confirm the old credits are at zero. Ask each lender for written confirmation.
2. Close revolving limits. A zero balance is not a closed credit; closure must be notified separately.
3. Close or freeze cards you do not need. At minimum reduce the limits.
4. Check your credit records a few months later and verify that the old liabilities have gone.

Keeping one card is often sensible

Closing everything is not automatically best. One card at a zero balance is useful when travelling, in online shopping and for purchase protection. What matters is the size of the limit: reduce it to a level you can clear in a single month. The terms are described on our credit card page.

Open limits count as liabilities in later applications, even unused. If a mortgage is on the horizon, closed limits improve the disposable income calculation directly. A consolidation is only complete when there is one credit rather than five.

A consolidation loan is effective when taken early enough. Its usefulness depends on where you are on the curve.

Early signs

• The number of credits has grown from two to four or more within a couple of years.
• Instalments take more than a third of net income.
• The end of the month is regularly tight although income has not changed.
• A card balance has not reached zero in six months.

At this stage consolidation works well: capacity is intact, credit records are clean, and the gain from the interest difference is at its largest.

Later signs

• New credit is taken to pay an instalment on an old one.
• Due dates are postponed for a fee, repeatedly.
• Payment reminders arrive regularly.
• Only minimum payments are made.

At this point unsecured consolidation is often no longer granted, because disposable income does not support it. The right step is to contact your creditors and the municipal free financial and debt counselling service. It is independent, and contacting it does not appear in your credit records in any way.

Creditworthiness behaves like a stock: you have most of it when you do not yet strictly need it. Consolidate while the situation is under control but the direction is wrong — not after it has escalated.

A consolidation loan is an ordinary unsecured consumer loan, so the requirements are the same as elsewhere.

• Minimum age 20 and regular, verifiable income.
• No payment default entry.
• Sufficient disposable income for the new instalment.
• A Finnish personal identity code and online banking credentials.

Applying step by step

1. List your debts: lender, outstanding principal, rate, monthly payment, remaining term.
2. Add them up. That total is the amount to apply for — no more.
3. Calculate the current total cost to the end, so the comparison has a baseline.
4. Request offers and ask each for the APR and the total repayable.
5. Choose the term primarily by the remaining term of your current credits, not by the instalment.
6. Check whether the lender pays the old credits directly. Many do, which removes the risk of the money being spent elsewhere.
7. Close the old credits and limits and collect the confirmations.

Applications are worth making within a short window rather than spread over months, because frequent applications show in credit records. After signing, the 14-day right of withdrawal applies. LuottoBotti does not assess creditworthiness — see our guide on the credit decision.

A consolidation loan is not the only way to lighten a debt burden.

A payment plan with the existing lender

Most lenders will negotiate the schedule. This costs nothing and requires no new credit. Worth trying first, especially with only two or three credits.

Prioritising the most expensive credit

If there is a little headroom, direct extra payments at the highest-rate credit and pay minimums on the rest. Mathematically this is the most efficient way to cut interest without new credit.

Free debt counselling

The municipal service builds the overall picture, negotiates with creditors where needed and assesses eligibility for statutory debt adjustment. It is independent and sells nothing.

Five mistakes to avoid

1. Stretching the term unnoticed. Always compare the total repayable, not the instalment.
2. Drawing extra money at the same time. Apply for exactly what covers the current debts.
3. Leaving old limits open. A closed credit does not refill.
4. Consolidating cheap debt into expensive debt. Secured loans stay where they are.
5. Comparing only the monthly payment. The price is told by the APR together with the total.

Before taking credit, assess your ability to repay calmly and, if needed, talk it through with a professional. Offers shown here are advertisements, and the lender confirms the final terms. Rules on pricing are covered in our guide on the interest rate cap.

Consolidation is assessed like any other consumer credit, with one addition: the lender wants to see the credits being replaced.

Gather the balances and rates of every credit before applying. It speeds up the decision and, more importantly, it tells you whether consolidation is worth doing at all: if the new rate is not lower than the weighted average of the old ones, the only gain is convenience.

Closing the old accounts is part of the job. A card limit left open and used again doubles the debt that consolidation was meant to remove.

This refusal is particularly frustrating, because the point of the application was to make the situation manageable. The logic is nevertheless consistent: the lender assesses repayment capacity, and if it is already exhausted, new credit does not improve it.

The usual reasons

• A default entry already exists. The most common obstacle, and a sign that the issue is no longer a financing question.
• Total debt relative to income. If instalments would take a large share of net income, no rate makes the calculation work.
• Unstable income. Fixed-term or intermittent income weakens the assessment.

What to do next, in this order

1. Contact municipal financial and debt counselling. Free, impartial, and it sells nothing.
2. Call the Guarantee Foundation's free debt line on 0800 9 8009. They also advise after a bank has said no.
3. Negotiate directly with your current lenders. A payment plan, an instalment-free month or a longer term are possible without new credit.
4. Find out whether debt adjustment applies. It is a court-confirmed procedure for someone permanently unable to pay.
5. Do not take new credit to repay old credit. That is the defining sign of a spiral.

⛔ Offers promising "guaranteed approval despite a default entry" in exchange for an upfront fee are scams. A licensed lender never charges for a credit decision in advance.