The credit buy-back with cash represents an effective solution to better manage the situation when you have to repay several monthly payments. This system consists of combining all of your debts into a single credit, to choose the best formula.
This is the best time to renegotiate your loan to reduce your monthly payments and minimize the risk of over-indebtedness. There are two solutions for this: renegotiation with the banks, which leaves you a few possibilities, and credit repurchase, which is a little more popular. In the context of a loan restructuring, it is often said that debt consolidation makes it possible to lower the credit repayment rate. Indeed, thanks to this solution, over-indebted households have the opportunity to start on a good footing with a more attractive rate. They can also benefit from an additional cash flow to finance a new project while benefiting from an advantageous monthly payment. By extending the repayment period of their loans, they can also have financial security for themselves and their families in the event of an unforeseeable event. For those who want to consolidate their debts, discover all our advice to help you complete your loan repurchases
What is a credit buyback?
Credit repurchase is simply a banking service in the same way as traditional consumer credit. As its name suggests, it is a matter of having your loan repurchased from a bank to take advantage of a new, much more advantageous loan contract. Simply put, with this kind of offer, you will ask a bank to reimburse the totality of your current loan against lower monthly payments and rates more adapted to the current market that you will pay him. Aimed at borrowers who already have consumer credit, credit repurchase is like asking for a new loan. Also, the capital to be requested will be the equivalent of the remaining amount of the debt, interest rates, and early repayment penalties.
When to ask for the credit repurchase?
The credit repurchase generally has two purposes.
It is a grouping of credit for those who have subscribed to several loans and who wish to smooth their monthly payments for better management of their credit. In other words, you will combine all your loans into one. This will also minimize the risk of over-indebtedness.
It is a way to lower the monthly payments and the rates of the loans and thus free up financing for another project or simply reduce the risks of over-indebtedness.
It’s the ideal time to ask for a credit repurchase if you haven’t yet been able to take advantage of the drop in consumer credit rates. Indeed, the recovery doesn’t seem to want to go away anymore and the consumer credit market is increasingly tense.
The conditions of a credit repurchase
But beware, can not ask for a credit redemption who wants. You must meet several conditions to be able to take advantage of the offers of banks. Firstly, the credits eligible for repurchase are those that have been repaid up to 60%. For the banks, this is a guarantee of the return on their investment. Checks will return checks carried out to ensure that your profile is risk-free. Besides, you must constitute a file for a new loan. That is to say that you must also have credit insurance and present guarantees of perfect repayment. Banks only offer their services to French residents. A certificate of residence will be required in addition to identity papers. On the other hand, buying back credit does not oblige you to direct your account to the new bank where you will take out the loan. This is practical
For the variable income of employees on fixed-term or permanent contracts (bonuses, percentages, etc.), the lending institutions evaluate the borrower’s income according to his or her fixed salary. The amount of credit that can be restructured is thus calculated according to the borrower’s income and expenses. Note that some organizations and banks propose the repurchase of debts as well as the financing of a new project ranging from a value of 3000 euros to 250 000 euros.
Are there any fees generated by the credit repurchase?
Renegotiating loan rates or restructuring debts is not a simple operation. It generates costs that can be significant depending on each restructuring organization. On the other hand, it involves parties such as the broker, the insurance company, the notary, etc. If the lending institution proposes a handling fee, it is evaluated at 1% of the amount of the new loan. For real estate loans, early repayment fees are calculated up to 3% of the amount of capital to be restructured. For mortgage financing and guarantees, notary fees can range from 6% to 9% of the amount of the new loan. Finally, for costs related to the work of the intermediary of the banking operation, these can range from 4% to 8% of the amount of the new loan.
What are the acceptance criteria for a credit consolidation file?
The conditions for acceptance of a request for consolidation depend on the borrower’s resources, solvency, age, amount of outstanding debts, collateral, and payment history. First of all, the borrower must be of legal age, valid, and have all his civil rights. Households in the process of divorce and foreigners holding a temporary residence permit are obviously rejected. Normally, the rate of 33% is respected, but some organizations may accept a debt rate of up to 50% if the borrower is a homeowner. Concerning the age limit accepted, the criteria are not very tight on this point. For consumer loans, the age limit is 70 to 80 years old. In addition, the organizations do not accept as collateral unfinished goods, wooden constructions, camper vans, boats… Some organizations also grant a credit repurchase to a person on the FICP file if he is a homeowner. But if it is forbidden to the bank, the possibility of debt restructuring is excluded. Finally, people indebted to gambling, people indebted to professionals, people wishing to buy a personal property cannot claim this operation
What you need to know in a credit consolidation
In addition to getting your finances back on track in the event of overindebtedness, credit pooling also allows you to have a less stifling fiscal situation. Indeed, different circumstances in life can lead to indebtedness. It may be due to divorce, job loss, or death. And when one’s monthly income is no longer sufficient to repay outstanding loans, credit consolidation is often considered an immediate solution to protect oneself from banking incidents. Note that the borrower must be familiar with the solution that has been proposed to him or her. In this approach, knowledge of elements such as the variable or invariable rate, early repayment penalties, the possibility of renegotiating the rate or the terms is essential.
The difference between a variable or fixed rate
Credit restructuring allows you to balance all your credits (credit cards, revolving credits, tax arrears, real estate loans, etc…) into one. As long as the balance tends to accumulate at the end of the month instead of being paid, it is better to restore your budget as soon as possible. Among the durable solutions, the most common is credit buy-back. By using this operation, the borrower can lower his monthly payments while modulating the duration of the repayment. On the other hand, over the last 5 years, a considerable decrease in credit rates has been noticed. This is due to the economic context and many have taken advantage of this situation to renegotiate their home loan rates. In principle, it is during the subscription of credit that a borrower makes a choice of a revisable or fixed rate. The fixed-rate is fixed from the beginning and remains the same until the end of the loan. This is interesting if the rates are low. The candidate for the loan knows in advance the amount of the monthly payments he would have to pay. Several credit organizations offer this fixed rate. On the other hand, a loan with a variable credit rate adapts according to the rise or fall of the financial indicator linked to the evolution of the market rate. The monthly payments can increase or decrease up to a floor or ceiling rate (double the rate for the increase and 0% for the decrease).
This solution can be advantageous at the beginning of the repayment and in case of a high rate decrease. It applies especially for the real estate credit but it is generally to be avoided for the other formulas. On the other hand, if one subscribed to a fixed rate, one must remain throughout his credit in this choice. For an invariable rate, if the loan is not capped, the debtor can apply to switch to a fixed rate. This is why, in this case, it is advisable to find out if the rate increase is capped, if it is lower than the current rate if it is possible to revise this rate and to limit the decrease in monthly payments before choosing a credit consolidation contract.
What is a prepayment charge?
According to the Lagarde law, since May 01, 2011, amortizable consumer loans are subject to repayment penalties beyond one of 10,000 euros for a 12-month repayment period. For real estate loans, the indemnity will be less than 3% of the outstanding principal or 6 months of interest on sums already paid. It is in the credit repurchase agreement that one can read these conditions of this repayment penalty. On the other hand, for a credit repurchase agreement signed after June 30, 1999, the bank cannot ask for the payment of early repayment penalties if the reason for the real estate loan repurchase is the death of the borrower’s spouse or a work stoppage. Negotiation of these fees is important because the borrower’s financial situation may be restored. It is therefore in your best interest to have minimal or even non-existent prepayment fees. The negotiation of these fees must be done at the time of the conclusion of the contract
How exactly does a credit repurchase work?
First of all, it should be noted that during a credit consolidation, a borrower can consolidate only a portion of his debts provided that the total debt does not exceed the maximum indebtedness ratio. To find out the amount of money that can be borrowed and the advantageous formula for one’s case, one can make a simulation with an online credit repurchase simulator. After having studied the offers of the repurchasing organizations according to their APR (overall effective rate) with the same repayment period, one must prepare one’s files. Supporting documents can be sent via the Internet or by e-mail or in person. If, after studying his file, the grouping of credits is granted, one can then obtain his contract proposal. The first monthly payment is due after signing the contract and as soon as the legal withdrawal period has elapsed. The lender will then take over the outstanding debts (tax debts, professional debts, insurance, rent….). In doing so, it will directly reimburse the old credits of its new subscriber. It can offer to take out provident insurance, death and disability insurance, temporary disability insurance, or work stoppage insurance. But the choice is optional. The bank or the lending institution can advise this only to secure the client. Most lenders will also accept that project financing be added to the client’s debt restructuring application. This allows for better management of his budget. But the conditions for accepting financing also depend on the client’s file and personal situation. If the guarantees provided do not seem stable for the bank, it has the right to refuse the purchase and the financing. Finally, it should also be noted that if a candidate borrower has already made a credit repurchase transaction without any payment problems, he may also be eligible for another debt restructuring. And if the bank has refused his file, he can turn as a last resort to the over-indebtedness commission to clean up his budget. However, some credit repurchase agencies do agree to buy back his credits if he owns them.
What are the pitfalls of a credit consolidation?
Like most loan solutions, scams and misleading and unclear loan offering practices cannot be excluded by financial operators. It is therefore prudent to check certain things such as the total cost of credit example. This refers to the total fees to be paid in connection with the loan. This includes, among other things, file fees, insurance and mortgage fees, interest, etc. Spreading the repayment period over a long period of time slows down the repayment process while significantly increasing the total cost of the operation. This is true for revolving credit as well as for consumer loans. Besides, the interest to be paid can be significant when repurchasing a long-term consumer loan
For the real estate credit, it is necessary to foresee the cost of the penalties of anticipated repayment, the expenses of the file? There are also seemingly attractive offers with variable rates, but these can increase dizzyingly after a certain amount of time. In short, the verification of the comparison on the TEG and the good deciphering of the conditions of the offer are essential in this operation. By avoiding the pitfalls, the credit repurchase can be a sustainable and advantageous solution if you have difficulty making ends meet because of your numerous credits, or if you want to boost your finances.