Today, the number of individuals who have taken several credits over the years remains high. This situation is understandable since it is easy to accumulate several loans provided that all of them can be repaid. The loan of a typical student to finance his studies can be followed for example by a car loan, a mortgage, a work loan, and other personal loans. All of these credits generally help the development of an adult’s life. Thus, by subscribing, the borrower is more focused on the amount of money to be obtained rather than the repayment that will follow. However, even if the monthly payments of each credit contracted appear small, put end to end, they become colossal. The weight of these monthly payments in the budget can easily lead to a situation of over-indebtedness. To avoid this extreme, it is possible to start a procedure of credit redemption. This is a solution that helps many people overcome their financial troubles. Discover in this article all the important details to know about the credit redemption before committing to it.
The repurchase of credit: Munico?
Wading between several credits is hardly a comfortable situation. When you feel that you may be losing out on the many loans you have taken out, it may be time to opt for a credit buy-back. As its name suggests, the credit buyback operation consists of a resumption of all outstanding loans of an individual for the purpose of grouping them into a single credit. What are the specificities of such a financial transaction?
Genesis of the repurchase of credit
The history of the repurchase of credit can not be told without that of consumer credit. Indeed, this financial operation does not appear until after the creation of the consumer loan. The latter was introduced after the First World War by the major car manufacturers of the time. Several loan solutions have emerged subsequently. As a result, households did not struggle to multiply loans to buy current goods and meet all their daily needs. Debt problems soon began to emerge. Consequently, it was necessary to find an instrument to regulate the indebtedness of the latter. This is where the credit buyback operation was born.
In time, the banks themselves do not deal with the development of this financial transaction. They used intermediaries in banking operations (IOB) whose role is to facilitate relations between individuals and credit institutions. The concept will not become popular until the 2000s and it continues to expand to the present day, although the vagaries of French growth are ubiquitous.
Understand how a credit buyback works
The repurchase of credit is a financial transaction that consists of replacing one or more outstanding loans and other debts of a person with a single credit agreement. This operation is generally carried out by a financial institution different from those who previously granted the credits to be consolidated. Several names are used today to designate this same financial operation. We can for example quote:
- Debt consolidation;
- Credit restructuring;
- The collection of loans;
- The grouping of debts.
This combination of several loans in progress in one is often unknown or poorly known by many people. In a simple way, the repurchase of credit leads to the obtaining of a traditional loan that includes all or part of your outstanding loans. The transaction implies an early repayment of each outstanding credit. To do this, an advisor from the buy-back organization that you have chosen will help you build a file that lists all the credits you are currently paying. Depending on the nature of your file, you can get a proposal to buy back all of your loans.
In addition, depending on your financial situation you can even ask the repurchase organization to grant you additional financing that will be added to the new credit you will obtain. It will be refunded with other credits via the same monthly payment. This extra cash is usually helpful when the borrower’s finances are in the red. It helps to overcome difficult times. Note however that the new credit is accompanied by a new monthly payment, a new repayment term and a new rate. The attributes of a credit transaction can be summarized as follows:
- Consolidation of credits
- The reduction of the amount of monthly payments;
- The reduction of the debt ratio.
In practice, the purchase of credit is an operation that appeals to many people because it can reduce mechanically the amount of monthly payments from 50 to 60%. The result is net especially if the conditions under which the loans to be bought are bad. The first objective of the credit redemption is therefore to relieve the consumer of the weight of the monthly payments he supports. These monthly payments are reduced so that the rest of the household is sufficient for him to lead a decent life. However, the new credit is spread over a generally longer period. The latter can not exceed 12 years for consumer loans and 35 years for a transaction involving mortgage loans.
What are the different credit redemption scenarios?
There are several typologies with regard to the repurchase of credit. In the world of loans, we find mainly consumer credit and mortgage. Thus, we will talk about the consolidation of real estate credit or the purchase of consumer credit depending on the types of loans that the transaction integrates. For a combination of the two types of loans, we will always talk about the purchase of consumer credit, if the share of the mortgage to be purchased does not exceed 60% of the total capital remaining due.
In addition to this classification, it is also possible to identify a repurchase of credit thanks to the various reasons which push the consumer towards this operation. Thus, we can list several credit redemptions depending on the profile of the borrower. We have for example:
- Grouping credit for senior or retired people;
- The repurchase of credit for civil servants;
- The grouping of credit for intermediaries;
- The repurchase of credit without a CDI;
- The repurchase of credit for owners or tenants…
As mentioned above, it is possible to obtain additional cash during the repurchase transaction. Thus, one can identify the debt consolidation by the project that you want to achieve through this additional funding. For example, we will talk about the purchase of car loans or the redemption of work loans. In addition, the financial situation can also define the type of credit redemption to be made. As an example:
- The redemption of credit overindebtedness;
- The repurchase of credit for prohibited banking;
- The redemption of credit for unemployed people…
The benefits of a loan consolidation
The benefits of buying back credits are legion. The decrease in the amount of the monthly payments is obviously the first asset of this financial transaction. As soon as the funds are released, you can have a larger living space to easily meet your daily needs. In addition, the credit consolidation is a good solution to anticipate a situation of over-indebtedness. Indeed, this operation allows you to gain enough time to put order in your finances.
In addition, you benefit from better management of your receivables by opting for a loan consolidation. In concrete terms, you no longer have to bog down with several creditors or with many monthly payments whose deductions are made on different dates. You will now only deal with the redemption institution by paying a single monthly payment. As a result, you can easily track the movements on your bank account statements. The other benefit of this financial transaction is its degree of accessibility. It is open to a wide audience and to all the enumerable credits. For example, homeowners, tenants and even borrowers who live with a third party may apply for a loan redemption.
The credit pooling limits
It is undeniable that the purchase of credit can help you get a breath of fresh air when it comes to managing your budget. It also improves your purchasing power. However, note that the decrease in your monthly payments is accompanied by an extension of the duration of the credit. You must pay the full amount due. This spread will increase the total cost of credit. It is therefore clear that the repurchase of credit is more expensive for the borrower in the long run. Far from the miracle recipe that saves you from over-indebtedness, this financial transaction makes you spend more money.
It is important to know that a repurchase transaction also entails additional charges such as early redemption fees. In addition, there is a plethora of buy-back offers on the market. Thus, between advertising on the internet and on television, the promotional offers of banks and credit organizations, it is often difficult to make a choice. You can trust a broker to find the best deal. However, do not forget that the latter will have to be paid as well. Even if you do not pay for it directly and get commission from the repurchase institution, you are not immune to this expense. Indeed, the lender will redistribute the cost of the broker’s service on your monthly payments.
The motivations behind the loan buyback
There are many reasons why individuals seek credit redemption. Financial gain remains at the top of the list. However, there are other motivations, namely:
- The need to rebalance its finances;
- Fear of over-indebtedness and bank fichaging;
- Preparing for his retirement
- The need for additional cash flow;
- Realization of a real estate project (with a buy back of credit, you reduce your debt ratio and increase your chances of obtaining a mortgage from the credit agencies);
- The decline in income (after situations like a long illness or a job loss, you can see your income decreased and therefore no longer be able to cope adequately with the various monthly payments).
The repurchase of mortgage
When the transaction concerns exclusively real estate loans, it is called repurchase of mortgage. It is possible only under certain conditions. For example, a repurchase institution can only be solicited when the lender is unable to buy back its own mortgage. In addition, the purpose of a mortgage repurchase generally goes beyond a simple consolidation of credit. In reality, here the goal is mainly to reduce the total cost of the loan. The decrease in monthly payments or the debt ratio is therefore not the main objective. It is therefore important to review the different facets of home loan buyback.
Renegotiation to obtain a mortgage repurchase
We talk about renegotiation when the repurchase of credit is done by the lending organization itself. We are looking for better conditions for credit than those granted for its subscription. Here, the operation will only require a simple modification of the loan agreement. Thus, you will not have to pay the expenses of file. But, what does the credit institution gain from giving you better terms for a loan that is already running? If the lender accepts a renegotiation of a home loan that he had previously granted you, it is that he seeks to keep you as a customer. Otherwise, this type of operation does not benefit him.
In practice, the rider you will obtain for this operation as part of a fixed rate credit must include a schedule that details for each maturity, the amount remaining due. It must also present the new annual percentage rate of charge (APR) applied. The latter should logically take into account only future deadlines and fees.
When the subscribed real estate loan is at variable rate, the addendum must also include a schedule that details the remaining capital due at each maturity. The APR applied and the cost of credit must also be mentioned. In addition, the addendum must clearly state the conditions and how the rate varies.
Subscribing a new loan with a new organization
When renegotiating your loan is unsuccessful, you can redeem it through a new organization. In this case, a new contract will be signed to take back the real estate credit (s) in progress. From now on, it will be as if you are buying a first loan. However, unlike a renegotiation of the mortgage loan, such an operation gives rise to certain expenses such as prepayment compensation or filing fees.
In addition, since the repurchase transaction is comparable to the subscription of a new credit, the lender will have to make sure of your solvency. You must therefore provide the vouchers that the repurchase institution has requested. It may also be that the latter requires the purchase of new insurance. In addition to this guarantee, the lender can also apply for a mortgage or bank guarantee. It is obvious that the repurchase of mortgage can sometimes seem binding. Nevertheless, there is no reason not to go for it if the new contract to obtain is less expensive than the old one.
When should I buy real estate loans?
For almost a decade, annual mortgage rates have been falling steadily. In concrete terms, the average APR of the mortgage loan is currently three times smaller than in 2008, regardless of the repayment term. In this atmosphere, a redemption is highly recommended to lower the cost of your credit over the rest of the repayment period. However, before opting for such an operation, certain criteria must be evaluated. These include the following:
- The difference between the rates (it is essential that the rate differential between the original loan and the new one be at least one point);
- The weight of the outstanding capital (there is no interest in repurchasing a loan for which the outstanding amount of capital is small);
- The remaining repayment term for the credit (if you have already exceeded the first half of the life of the credit, a renegotiation or a redemption will not be enough any more).
In order to accurately study the interest of repurchasing your mortgage, you can rely on an online loan simulator. This tool allows you to calculate the feasibility of your project with several redemption organizations. You will be able to know the most advantageous option between a renegotiation with the establishment of the loan of origin and a redemption with another organization. Moreover, these online loan simulators are free and without commitment. So you do not lose anything to use them.
Understanding the buyback of consumer credit
Credit redemption is a financial transaction that may involve one or more debts. It finds all its meaning with the consumer credit which some rates are quite high. For it to be successful, the operation mainly takes into account the nature of the credits to be consolidated. Indeed, in the universe of consumer loans we find different types of loans with quite diversified profiles.
What is a purchase of consumer credit?
We are talking about buying back consumer credit when the debts to be consolidated are only consumer loans. The majority of households using the loan pool have revolving credit in their loan basket to consolidate. This type of loan is indeed the most expensive of all consumer loans. It is also known as a major factor of household over-indebtedness. However, they continue to subscribe since it is very easy to access. In addition, several legal provisions exist today to frame it.
When there are payment difficulties with a revolving credit, it is best to quickly ask a financial institution to buy it. You can include in this transaction all other credits and debts that are pending. As a result, you get a new credit with several benefits to know:
- The change of the variable rate of the revolving credit into a fixed rate with the new loan;
- Lowering the rate of revolving credit to a more competitive rate;
- The reduction of the amounts of the monthly payments to release a better left to live for the household…
Before accepting a request for redemption, the institution sought focuses first on the reasons for the debt (impulsive expenses of large amounts, accident of life, type of credit subscribed). It is after this analysis of the financial situation of the applicant that the lender proposes an appropriate formula for the purchase of consumer credit.
The different types of consumer credit groupings
The repurchase of consumer credit is quite beneficial for the plaintiff in that it is found after the operation with only one reduced monthly payment. Here is for example a list of loans that can be grouped as part of a purchase of consumer credit:
- The credits allocated (the car / motorcycle loan, the work credit…);
- Personal loans;
- Renewable credits;
- Student loans;
- Personal microcredit.
The question of the rate of a credit surrender
For all financing solutions offered by financial institutions, the interest rate is an indicator of their remuneration. In practice, there are usually two interest rate designations on the credit offers: the nominal rate and the annual percentage rate of charge (APR). The nominal rate, also called the gross rate, makes it possible to determine the amount of direct interest. As for the APR, it makes it possible to evaluate the real cost of credit. In fact, it takes into account, in addition to the nominal rate, all the other charges that apply to the credit. Thus, the rules in force require credit organizations to mention the latter rate on their site and in all offers of loans. This provision is also valid for the repurchase of credit.
Understanding the interest rate mechanism in a credit buyback
It is generally observed that the rates applied for a consolidation of consumer credit are higher than those used for a mortgage repurchase. This is justified by the fact that consumer credit rates are naturally higher than those of real estate loans. Thus, for a credit buyback transaction that takes into account little or no consumer credit in addition to a mortgage, the rate applied will be close to real estate renegotiation rates. For a repurchase of credit which only includes consumer credit, the rate applied generally varies between 4.8% and 5.5%. Obviously, this rate mainly takes into account the outstanding amount of the loans to be consolidated as well as their rate.
How to get a credit buyback formula with a better rate?
Whether it’s a home loan buyout or a consumer credit consolidation, the solicitor must look for the best rate for their transaction. To do this, it is essential to compare the offers of the market. The competition of these offers can be done in the old fashioned way. You just have to go around the credit agencies and banks until you get the best deal. However, this option is very tedious and quite expensive. Not only do you spend money going to the organizations, but you also lose time and energy.
There are other more productive alternatives to getting the best credit buy offer. For example, you can use an online credit redemption comparator. It is a tool that can be found on the sites of credit institutions that offer loan consolidation offers. It is also available on sites dedicated to online credit comparison like Rate.com. The online credit comparison tool is an essential tool for a consumer who wants to buy back credits by a buy-back organization. Indeed, it is above all easy to use, free and without commitment. In addition, it allows to find the most interesting offers by comparing their respective characteristics.
To use it, you must first enter the fields proposed to describe your proposed credit redemption (nature and characteristics of credits in progress). Depending on the comparator used, you will also have to inform the composition of your family unit and your status vis-à-vis real estate. In reality, being a homeowner can have an impact on the credit buyback transaction since the property held can serve as collateral. Then you will have to mention your resources and all of your recurring expenses. Finally, just run the simulation in one click. You will then receive several proposals in which you will choose the one that is the most advantageous.
Instead of simply comparing the offers, you can request the expertise of a broker specialized in credit consolidation. In doing so, you have access to many more offers. In fact, some buy-back organizations only deal with specialized intermediaries. In addition, you increase your chances of gaining a better understanding of the elements of the various credit redemption formulas that will be offered to you. However, be aware that the very useful intervention of this broker will make the operation slightly more expensive (it is necessary that the broker is paid for his assistance).
Is the rate the most important criterion for a credit surrender?
The offer with the smallest APR is the one that will have to challenge you first after a credit redemption comparison. Nevertheless, it is important to know that the offer with the lowest rate is not necessarily the best. In practice, for many providers offering equivalent rates, there are other hidden conditions that can significantly influence the overall cost of the transaction. To do this, in addition to the APR, you need to consider loan redemption formulas as a whole. In practice, all the following elements must be analyzed:
- The adequacy of the new monthly payments with your resources;
- All ancillary costs;
- The proposed duration of the new contract;
- The set of conditions of modularity of the loan.
In a loan consolidation transaction, the repayment term is very important. In fact, it is possible to play on this criterion to adjust your monthly installments to a level that corresponds to your financial situation. The longer the duration, the smaller the amount of monthly payments. However, it should be noted that this facility is not inconsequential. The consideration is a proportionate increase in the total cost of credit. This is why the best choice will be to find an optimal balance between duration, overall cost and credit conditions.