To finance projects or simply to improve their quality of life, consumers are looking for financing solutions. The repurchase of credit is one. This system, like consumer credit, is governed by French law (the Neiertz law of 1991 or the Scrivener law of 10 January 1978). What is the principle of credit redemption? What are the advantages and disadvantages ? Are there different types of credit surrender? What notions do you need to know?
Information point on the repurchase of credit
The term “repurchase of credit” perfectly defines its purpose. This financial transaction, which is offered by both banks and credit houses, consists of pooling your current loans (consumer loans such as mortgage loans) into one single credit with reduced monthly payments. A boon for indebted households who are looking for a solution to readjust the balance of the budget, but also for consumers who want to finance a new project (purchase of a vehicle for example).
The advantages of credit redemption are therefore:
- Have only one lender and, therefore, only one monthly payment.
- Have a reduced monthly payment for a better flexibility in the management of its bank accounts.
- Decrease your debt ratio.
- Have a unique and constant rate.
If this financing solution is attractive, there is a major drawback which is the lengthening of the duration of the loan. This is a condition sine qua non to reduce the amount of the monthly payment. In addition, you should know that the longer the repayment period, the higher the total cost of credit.
There are several types of credit redemption.
The solutions depend essentially on the organisms. Here are the main ones:
- Redeem consumer loans. Here, only consumer loans are concerned such as car loan, work loan, revolving credit or the loan for the financing of a trip.
- Redeem mortgages. Here, only real estate loans are grouped together. If you only have one home loan, you can renegotiate it to lower the monthly repayments.
- Redeem consumer loans and mortgages. Here, the organization agrees to collect all credits.
In certain situations, the organization wants guarantees. It could be:
- From a co-borrower: a person (or an organization) vouches for you. Thus, if you are no longer able to repay, it is the co-borrower who must honor the monthly payments.
- A mortgage: the mortgage is the property of the applicant. The mortgage is requested during a restructuring of the mortgage loan with consumer credit. The repurchase of credit is called the repurchase of mortgages.
- Borrower Insurance: There are insurance policies that protect the borrower. This insurance is a guarantee for the organization since it is certain to be paid in case of unforeseen events ( accident, dismissal, death ).
Vocabulary of the repurchase of credit
In order to better prepare your appointment with a financial advisor, it is important to be aware of the different terms used in terms of credit redemption. Indeed, there is a vocabulary peculiar to the field of finance and the jargon is not always well understood by ordinary citizens. To help you, we have listed the main concepts to know.
Borrower Insurance: This is a policy that protects your credits and an additional guarantee for the loan organization. In case of unforeseen circumstances ( dismissal, for example), the borrower insurance takes over to honor the payment of the monthly payments.
Debt Capacity (also known as repayment capacity ): This is the amount of money you have after paying all your expenses. From this amount, it is possible to determine the monthly payments and the duration of a loan.
Remaining capital: This is the amount of a credit remaining to be repaid.
Total cost of a loan: The basic loan is increased by interest. The sum of the loan and the interest gives the total cost of the credit.
Long-term credit: if the term is greater than 7 years then it is a long-term credit. If not, the financial advisor uses the term short-term credit.
Mortgage: Real estate put in guarantee by its owner. In case of unpaid, the body can sell the mortgaged property.
Monthly payment: this is the amount of money you pay each month to the lender for the repayment of the loan.
Over-indebtedness rate: the ratio of resources to expenses. If the rate exceeds the threshold of 33%, you are considered to be over-indebted.
Variable rate: this is the interest rate of your loan. It can be revised. The amount of the refunds may therefore vary.
Fixed rate: this is the interest rate of your loan defined in the loan offer and will remain the same throughout the duration of the loan.