Credit redemption consists of consolidating several outstanding loans into one. It is therefore used to repay once a month his monthly payments. It can be granted by a bank or a financial institution. More concretely, the repurchase of credit allows the borrower to spread out his debt over a longer period, and thus to reduce his monthly payments.
The repurchase of credit is for everyone: tenants, owners, employees or officials. On the other hand, most of the time it is possible to get out of a critical financial situation. It also prevents us from being stuck in the Francia bank as a banking prohibition.
In which cases can one subscribe to a repurchase of credit?
The repurchase of credit has many advantages for the borrower. Not only does it make it possible to reduce monthly repayments thanks to the lengthening of the repayment period, but it also makes it possible to lower the interest rates of all the cumulated loans. In addition, by repaying only one amount per month, the borrower receives a much clearer follow-up and will have only one bank or financial institution referent.
Thus, this operation can be particularly interesting for households that have difficulty repaying their various credits.
Redemption of mortgage
This operation can be particularly advantageous when the interest rates of mortgages are at their lowest. When the interest rate charged is lower than that of the real estate credit contracted, the borrower can then reduce the term of the loan by paying lower interest rates.
The borrower can also subscribe to the repurchase of mortgage to reduce the amount of his monthly payments ; in this case, for the operation to be interesting, the new interest rate must be:
- At least one point lower than the initial interest rate if the borrower is in the first third of the repayment;
- And 2 points when the borrower has exceeded 2/3 of his credit repayment.
The duration of the repayment of the new monthly payments must be between 5 and 30 years.
Auto loan buyback
The purchase of car loans may concern a new or used car. It can be purchased from a car dealer, a bank, or a financial institution specialized in car loans.
This repurchase of credit has the same terms as a global loan redemption, and allows the borrower to have a clarified follow-up of his monthly loan payments. Indeed, he will have to repay only one monthly payment, regrouping all his loans. In addition, his monthly payments are lower than the sum of previous monthly payments, as long as the borrowing period is lengthened.
Finally, a special case for auto loan repurchase: If the borrower is the victim of theft of his car, or deterioration, the amount reimbursed by the insurer can come to participate in the repayment of the loan.
Buyback of consumer credit
The purchase of consumer credit includes the purchase of auto credit, but also revolving credit or affected, or even personal credit (no project required). This concerns all types of consumer credit.
For example, this may concern a household with a car credit of $ 300 over 5 years, at the same time as a credit subscribed to pay a sofa at $ 200 over one year and another for a trip to $ 100 out of 2 years. The borrower can then request, as he wishes, to regroup the 3 credits, or only two of them.
The financial institution dealing with the repurchase of the credits then redeems all the credits to the banks or credit organizations where the credit agreements will have been subscribed beforehand.
Generally, the overall rate after credit redemption is about 3 times lower than the rates charged for revolving credits. Holders of this type of loan will therefore look with more interest towards the repurchase of credit. Indeed, due to the risk taking of lenders, there is a generally higher rate for revolving credit.
Buyout credit overindebtedness
In case of difficulty of repayment, it is possible to make a request for redemption credit overindebtedness with the Commission of Over-indebtedness. This step comes after requesting a redemption of credit that would not have been accepted.
It is then the Francia bank that proposes a solution to avoid over-indebtedness. This procedure is free for the borrower.
How to make a credit redemption?
To perform such an operation, it is recommended to use the online comparators, in order to find the best offer. The borrower can also turn to his bank, but he will not be assured of having the best interest rates for his credit redemption. Indeed, there are many organizations that can offer credit buybacks, with different terms and fees. Interest rates are in any case not fixed and left to the will of the bank.
It is also possible to go through a specialized broker, but there will be more fees.
Whatever the organization used, it is essential to submit the following supporting documents:
- Civil status of the borrower
- Income (last 3 payslips, employment contract, tax notice, etc.)
- The charges
- The debt ratio (must not be greater than 33%)
- Real estate assets and the act of purchase if the borrower owns
Indeed, even if it is a repurchase of credit, the financial organizations study just as much the solvency of the borrower; the risks remain significant and even if the debt is repaid over a longer period, and therefore a smaller amount monthly. This operation remains a committed credit. The bank and the borrower must check the repayment capabilities before committing; this applies to credits as much as to credit redemptions.
The negatives concerning the repurchase of credit
The credit buyback has many advantages mentioned above. But, the borrower must also take into account other factors that may result in high costs such as:
- Credit insurance if it is compulsory (ADI: death insurance disability, very often imposed by the banks because it covers the guarantees death, disability and temporary incapacity for work).
- Bank or broker fees.
- The bank guarantee if it exists.
In addition, at the end of the repayment period, the final amount reimbursed will be greater than the initial amount, because of the length of the monthly payments.
For example, if the borrower makes a loan of $ 30,000 at a rate of 7.6%, it will cost $ 2280 over 10 years and $ 3420 over 15 years, which can be a significant difference at the end. the repayment term of the loan.
The borrower must choose between a variable rate and a fixed rate.
- Fixed rate: Same monthly payments but does not benefit from a possible fall in interest rates. The rate is higher than the variable rate. It may be worthwhile to redeem credit when interest rates are particularly low.
- Variable rate: The monthly payments are then uncertain, and can decrease as much as increase according to the fluctuation. The borrower can therefore end up with a final amount well above the one he had planned.
Other negative points
- It’s almost impossible to take out a credit buyout after 75 years
- A mandatory health questionnaire will have to be informed. It will be useful to know if you need other insurance, or even to increase or decrease the contributions and the duration of the repayment.
- Finally, a credit redemption can take time. We must therefore anticipate a potential problem of repayment so that the borrower is not caught off guard.
It would be unwise to find oneself already in a situation of debt distress during the constitution of one’s repurchase of credit.
Conclusion on the repurchase of credit
Generally, it is easier to buy back your loan, than to validate your first loan. And this, whatever the field (consumption, real estate or auto). Indeed, the fact of having taken out a first loan shows that a financial institution has already trusted the borrower. He has already studied his solvency.
However, it is necessary to highlight the strengths of his file so that the transaction is accepted. This concerns:
- Bank records
- The amount of savings
Indeed, a credit buyback usually denotes a financial problem to repay all its loans.
To avoid subscribing to a credit redemption:
- Study each credit application in detail
- Study the rates of each proposal
- Feel free to play the competition regarding the monthly payments in order to benefit from all the possible advantages