Credit redemption, definition

The repurchase of credits allows you to regroup your credits in the same credit and to benefit from a single monthly payment, often reduced, for all your credits

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What is the repurchase of credits

Credit Redemption, also called Credit Consolidation or Debt Restructuring, allows the pooling of loans committed by an individual or a household in a single monthly payment which can therefore be reduced. Loans are now commonplace in French households to help with daily expenses or to allow the acquisition of a specific good against repayment under several deadlines. There are different types of credits that can be accumulated by one and the same person.

One of the most common, mortgage loans, allows a household to buy real estate without first having capitalized the necessary sum since it is generally very high. Consumer credit will also concern the acquisition of a good but the latter will be of lesser value (example: purchase of a vehicle or household appliance). As part of an aid to the daily expenses of a household, it is possible to subscribe to a personal loan. The latter, not being linked to the purchase of a specific good, has less guarantee for the credit organization and will therefore include a higher interest rate than the aforementioned credits. There are also revolving credits which allow the provision of a revolving sum to an individual with a more flexible repayment, within the limit of a minimum monthly amount agreed upon when signing the contract. In short, there are credits for everything and it is therefore easy to accumulate them.

The accumulation of credits is possible but often risky for a non-specialist since the reading of the budget becomes more difficult. Indeed, between the deadlines of the various credits, the taxes, the rent, the charges, and the expenses of every day, it is not always easy to realize its budget. This can quickly lead to over-indebtedness of the household and insolvency at the time of repayment of committed loans which can also lead to disputes with the credit organization. It is in this type of situation that a person will be able to have recourse to a repurchase of credit. The repurchase of credit will allow him to optimize his expenses and simplify the reading of his monthly budget.

In addition to over-indebtedness, the repurchase of credit will be an option in several situations of everyday life and this in particular in the context of a change in family, professional or personal situation. Namely, in the context of a divorce, the arrival of a newborn, or even upon retirement, the budget is impacted by this change in situation (expenditure revised upwards, budget reduced, or simple restructuring). The will to invest can also represent one of the reasons why a person would like to set up a repurchase of his credits since by reducing the amount of monthly payments we will increase the savings capacity of the household and allow it to capitalize to invest. in a new project. We will therefore find different types of credit redemption depending on the context of the request, the profile of the applicant, and the nature of the credits already committed.

The different types of credit redemption

There are different types of credit redemption depending on the different credits to which the individual may have subscribed. Some loan buybacks will be closer to a so-called consumer credit buyback. In this case, the property (s) concerned by the initial credits can serve as a guarantee for reimbursement in order to have lower reimbursement rates than in other cases because the maneuver will be more secure. The repurchase of consumer credit can also include repurchases of car loans, personal loans, bank overdrafts, revolving credits, etc. In the case of a revolving credit buyback for example, the individual will use his credit buyback to repay the revolving credit and then set specific monthly payments and a repayment deadline in the contract. This will allow him to transform his revolving credit into an amortizable loan, offering him more security and visibility in the expenses of the months or years to come.

There are also so-called mortgage repurchases. This type of credit redemption only concerns owners who will therefore have to mortgage their property to offer a higher guarantee to the funding organization. Mortgage loans can combine mortgage loans and consumer loans, always with the aim of pooling monthly payments to pay only one month. A mortgage repurchase alone is possible and will essentially make it possible to renegotiate the terms of the mortgage initially signed by modifying for example the amount of the monthly payments or to be able to take advantage of more interesting repayment rates.

How to get a credit buyback

To obtain a repurchase of credit in the standards, the first question to be asked is that of the eligibility for the repurchase of credit. To be able to file a credit redemption file, several criteria must be met which will be different depending on the credit organizations requested. However, even if these criteria vary, we often find collusion concerning the following criteria:

  • The applicant must first of all be of legal age and not have been deprived of his civic rights
  • A stable financial situation (permanent contract, civil servant, liberal profession, autoentrepreneur with seniority, etc.) is almost essential to guarantee the solvency of the applicant with the organization that will finance the loan
  • French nationality is now a prerequisite for the validity of a credit redemption request in United States
  • The applicant's age is information taken into account in the study of a credit redemption file: A credit redemption is accepted from the moment the last repayment deadline is made before the applicant's 80 years old ( see 90 years depending on the type of credits committed)
  • The over-indebtedness rate is also an essential calculation for the study of a file: Financing organizations must carefully calculate the debtor's rate of the applicant at the time of the loan repurchase request but also his debt rate at the end of the signing of the contract. This must be reasonable to give rise to a restructuring by repurchase of credit. For information, the standard debt ratios during the validation of a file are between 30% and 38%.

Certain criteria also constitute additional variants in the eligibility of a file according to the different organizations:

  • Credit redemptions from traditional banks will be possible for individuals or households. Companies and organizations will have to turn to specialized funding organizations.
  • The banking history also constitutes an obstacle to the validation of a file which will be made possible only under certain additional conditions. For example, the repurchase of credit for banking prohibition will be accessible only from specialized organizations (the traditional banks will refuse it systematically because this one involves too many risks) and this under more strict conditions and with repayment rates more high

When a loan repurchase is made impossible due to non-eligibility, the applicant can always file a file with an over-indebtedness commission to find the help and support necessary for the restructuring of their repayment.

The advantages and risks of such an approach

In addition to the consolidation of debts into a single monthly payment allowing more visibility on the applicant's budget, the repurchase of credit offers several advantages to be taken into account. First, the monthly payments are revised downwards by an extension of the repayment period and / or a renegotiation of the interest rates. Indeed, a repurchase of credit can allow a person to have better interest rates according to the borrowing rates of the current market. As the market fluctuates, loan rates may turn out to be more attractive 5 years after signing a loan contract.

In addition to the pooling of monthly payments, a credit restructuring makes it possible to group together the various insurance payments. Indeed, a credit contract systematically generates the establishment of insurance costs, the accumulation of which is sometimes difficult to assume. The repurchase of credit will make it possible to reduce this sum by subscribing to only one and the same insurance for all the credits committed since these will have been grouped into one. Please note, certain insurance policies may be less attractive when the loan is redeemed, such as death insurance (since the applicant will have aged between the signing of the loan and that of the redemption) or even coverage against unemployment (since the situation of applicant may have changed).

The repurchase of credit has its advantages but it is still necessary to be careful since it is not always an ideal solution and, as an important financial step, it is essential to be interested in the risks that it represents, the the first being the increase in the amount to be reimbursed. By reducing the monthly charges we will, most of the time, lengthen the repayment period and therefore at the same time the overall cost of the loan. It is a more advantageous solution in the short term but including long term risks.

It will also be fashionable to note that the implementation of a loan repurchase will generate significant negotiation costs with the establishment of a new contract, and a potential penalty for early repayment with the bank of initial loan. This situation is also not very favorable for a long-term relationship with your banking establishment since who says credit redemption says new financial institution (a bank will very rarely agree to buy back a loan that it has set up itself since 'it will lose many advantages).

In all cases, when considering a loan buyback, it is essential to inquire. To do this, there are many well-informed online sites, brokerage companies dedicated to studying each situation individually to then offer the best solution to the need, online simulators to help you get an idea by yourself, and price comparators allowing you to have a better view of the market.

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