allows the borrower to have a certain amount of time during which he or she does not have to repay either the principal or the interest or only the interest. It should be noted that the insurance fee is not affected by this solution. As for the payment terms, they are imposed and defined by the lending financial institution. They are fixed at the signature of the loan offer contract.
To finance what type of project?
A deferred repayment loan is a tool regularly used by professionals and companies.
Real estate and major investment projects of local authorities are also sectors where the practice of the deferred repayment loan is very common. In particular, in the case of :
carrying out work
purchase of the business real estate, commercial or warehouse space
acquisition of a property for sale in a future state of completion (VEFA)
This solution appeals to those who do not wish to combine rent and monthly repayments. The banker will then propose the most appropriate deferred repayment for the situation.
In all cases, a distinction must be made between partial deferred repayment, total deferred repayment, and the deductible in installments
Partial deferred reimbursement
Also known as partial deferral, partial deferral repayment allows the borrower not to pay the principal until the deferral period is over. During this interval, only the interest and the insurance are to be reimbursed.
However, the amount of principal remaining at the bank remains unchanged. That is to say, there is no repayment on it. Then, at the end of the period of partial deferred repayment, the capital and interest will have to be paid simultaneously.
Consequence? The total price of the credit will be more expensive than a loan without deferment under the same conditions.
The total deferred repayment
Total deferred repayment, also known as a total deductible, allows the borrower to pay neither principal nor interest. The only fees to be paid are those related to the insurance of the loan. It should be noted, however, that interest is always due and is added to the outstanding principal
The amount to be repaid thus increases each month.
In conclusion, total deferred repayment is more expensive than partial deferred repayment. And in this case, we speak of negative amortization.
The deductible by installments
Franchising by installments or progressive release of funds is mainly used when a borrower has a project to build a property. Its principle consists of releasing the funds gradually from the bank according to the progress of the work or a given date. Thus, the developer contacts the borrower to obtain funds. The latter will then send the supporting documents to the bank to obtain the amount needed to carry out the work.
With the deductible in installments, the calculation of the interest due is based on the funds released. As a result, the monthly installments increase progressively according to the capital released. The terms and conditions for the release and repayment of the deferral are specified in the loan agreement.
Insurance and deferred repayment
To take out a loan, the bank requires the borrower to take out insurance. There is no legal requirement for the borrower to meet this requirement. However, few banks are willing to grant a deferred repayment loan without a minimum guarantee. Especially in the event of unforeseen events such as accidents, unemployment, death, etc., the borrower must be insured. Although not mandatory, insurance is, therefore, necessary to take out a Deferred Repayment Loan
It should also be noted that taking out insurance with a bank can be more expensive than with other insurance organizations. To avoid incurring additional expenses during his deferred repayment loan, the borrower can take advantage of the LoiLagarde. The latter allows the use of an insurance delegation. The borrower can therefore compete to ultimately take out cheaper insurance from an organization other than his bank.