The repurchase of credits: an operation increasingly requestedOn January 5, 2020 by admin
The repurchase of credits , also called grouping of loans or debt restructuring is a financial solution which makes it possible to improve the budgetary situation of a household. The main objective is essentially to reduce the monthly charge he devotes to repaying his various credit claims. In short, this financial arrangement is put in place to allow him to find real comfort in his budget, by rescheduling his debts, which will also bring him the possibility of finding savings capacity or of financing a new project. In the long term, the operation is less attractive because it increases the total cost of credit. We will therefore set out below its advantages and disadvantages.
Is credit consolidation a good solution?
When asked if buying back loans is a good solution for managing your budget, the answer is certainly yes, even if you have to consider all the different parameters. Encouraged by rates that are still low today, it has met with great success with more and more borrowers who wish to do away with the difficult end of the month and find flexibility, autonomy and comfort in their personal finances. As a real banking operation as such, the grouping of loans makes it possible to collect all the credits but also other debts of the household. It can be, first of all, all loans such as revolving loans, personal loans, restricted credits such as car or work loans. In addition to these, there are tax debts such as late income taxes, housing or property taxes, family debts, unpaid rent, various invoices, bank overdrafts, etc.
The financial institution which grants the credit will take charge of the balance of all outstanding debts and debts, which will be replaced by a new credit. This will benefit from a new renegotiated interest rate, new insurance but also a new loan term. The latter, as well as the amount of a new single monthly payment will be defined according to the borrower’s repayment capacity, that is to say his income. Thus, he will sometimes be able to reduce the level of his monthly charges considerably. In summary, the operation of buying back credits will allow to find a breath of fresh air in its finances, but also to avoid excessive indebtedness, even over-indebtedness. This effective solution will also in some cases offer the possibility of including a sum of money in the form of additional cash in the single loan taken out, which can make it possible to finance a new project.
The advantages of buying back credits
One of the major advantages of buying back loans is the revision of the interest rate. Over the past decade, real estate and credit rates in general have only gone down. Today they are much more interesting than they were. The grouping of loans gives the possibility of also buying up revolving credits, the rates of which sometimes rise above 20%. Such a financial transaction therefore means a single rate which has been revised downwards for all the old credits bought back. Be careful, however, not to take into account only the interest rate to check if it is profitable, it is all the fees and the total cost of the credit that must be studied with a magnifying glass.
A second major advantage of buying back loans is the single monthly payment, which simplifies debt management: a single monthly withdrawal on a fixed date and a single bank contact to manage. The amount may drop significantly depending on the new duration chosen. When it comes to buying consumer loans , it can go up to 25 years, and 35 years for buying home loans . A lighter monthly payment makes it possible to ward off the risks of insolvency and provides a real solution to an unbalanced budget. In addition, its amount is adapted to the resources of the household, so there is no risk that it will not be honored. Having only one financial institution to go to often avoids rejection of direct debits, damages and other irregularities that may occur. The repurchase of credits is an opportunity to renegotiate the terms of the credit contract , they of course include the interest rate and the duration, but the borrower can for example request the abolition of the early repayment indemnities or the delay of a deadline.
Aside from the fact that all of the credits and all of the debts can be consolidated into a loan buy-back , which is a major advantage, it can also include an amount of money earmarked for a new project. This allows the borrower to finance a purchase, works, a vehicle, a trip, etc., without having to take out a new loan. Excessive debt is thus avoided and, on the contrary, the debt ratio is brought back to a reasonable level, that is to say 33% maximum.
Finally, borrower insurance can also be unique and renegotiated, with a global contribution which may be much cheaper. For future retirees, the repurchase of credits is a solution to anticipate the drop in income linked to the cessation of working life because the monthly payment can be reduced to a level compatible with the amount of the retirement pension received. Even if the repurchase operation consists in replacing several debts by a new receivable, its effect on the budget is very positive.
The disadvantages of buying back credits
The repurchase of credits being a long-term financial operation, its impact on the budget can be less interesting than it seems. The fall in the monthly payment, which results from both the fall in the interest rate and the lengthening of the repayment period, makes it possible to regain financial comfort, of course, but these actions increase the total cost of credit. This means that buying back credits can be costly in terms of interest paid over the long term. To reduce these fees, the best option will be to negotiate the lowest possible rate and at the same time repay the highest possible monthly payment, which will have a direct impact on the duration of the credit which will be shorter.
Also pay attention to the fall in the household debt ratio which is a positive consequence of a loan buy-back operation. It can lead the borrower to take out a new loan from a financial body other than the one that granted the loan repurchase , which can again lead to excessive debt and therefore a deterioration of his financial situation.
Another parameter to check before launching such a transaction is the cost of buying back credits . These will increase the overall cost of the buyout operation. Among these costs will be:
– The costs of early repayment of all outstanding credits. They are capped at 6 months of interest on the capital remaining due, up to a limit of 3% of this.
– The administrative fees of the new bank or brokerage fees which can represent 1% on average of the total amount borrowed.
– Guarantee costs for financing with mortgage (taking or release) or deposit.
Before obtaining an agreement, the borrower’s file must go through a feasibility study defined by the criteria specific to each financial institution.