Credit redemption: a godsend or a scam to avoid?
Over the years, we sometimes accumulate loans to finance life projects or just to alleviate financial worries. When a change in situation occurs, the entire balance of a household is affected. After having sought to review your budget, prioritize your expenses or other solution, it is possible to contact a banking organization to renegotiate your loans or to opt for the repurchase of loans.
The repurchase of credit in a few words ...
The repurchase of credit consists in regrouping in a single loan all of its debts by reducing the amount of monthly payments, while extending the repayment period. In other words, a loan buyback is the transformation of several loans taken out over a short term into a single loan repaid over the long term with a more attractive interest rate. The repurchase of credit appears as an advantageous solution for the borrower who will be able to see his monthly payments decrease up to 60%. He will therefore only have one monthly payment that he will reimburse to a single organization, which facilitates budget monitoring, secures it and simplifies these banking procedures without changing his habits. The borrower will be able to see it as a possibility to increase his savings and to recreate a certain cash flow to finance new projects. Nevertheless, besides its advantages, it is important to underline a few points….
For or against, should we really be tempted by the repurchase of credit?
First of all, although this solution is intended for all people wishing to consolidate their debts into one to facilitate their budget management, it is also and above all intended for people wishing to alleviate a financial situation that has become difficult to manage. The people most targeted by this type of contract are people at the limit of over-indebtedness or even over-indebted. It is however important to specify that to benefit from a repurchase of credit, the procedure of over-indebtedness must not have yet been initiated with the Bank of United States. The term over-indebtedness is used when a person allocates more than 33% of his total monthly income to the repayments of his debts, credits, loans contracted with various funding organizations. If it is possible for him to file an over-indebtedness with the Bank of United States to cancel part or all of his debt, it may also have recourse to the repurchase of credit. This solution will therefore allow it to move from this situation of over-indebtedness to a so-called more “normal” situation. In addition, it will allow him to avoid being registered in the national file of incidents of repayment of loans to individuals (FICP), which leads to the almost systematic refusal of a request for bank loans. Indeed, a situation of over-indebtedness can be temporary, so in this case it is preferable to resort to a repurchase of credit. The situation returned to normal, you can then consider using a loan again to finance new life projects.
A point not to be overlooked when buying back credit is the interest rate at which you will buy back your credits. It should be noted that the rate to be taken into account is the APR and not simply the interest rate itself. The APR corresponds to the annual percentage rate of charge. This rate includes on the one hand the own interest of the loan, but also on the other hand, the administrative costs, insurance contributions (when this is compulsory), commissions and remuneration of all kinds. In general, it is always more interesting to have a fixed interest rate rather than a variable rate. Indeed, beware of offers with low interest rates during the first months that increase 6 months later, or offers with revisable APRs. Even if the monthly payment will remain the same, the part of the net repayment of the capital will be reduced in favor of the part of the interest. This may therefore lead to an increase in the loan repayment period. In fact, it is impossible to assess the variation in adjustable interest rates over the long term. During a loan repurchase, you are already engaging in a repayment procedure over a long period, do not take the risk of increasing this period exponentially. You would risk losing a lot of money… while you were trying to get out of a debt situation….
Like when you take out consumer credit or take out a home loan, a word of advice: make the competition work. Ask for offers with total costs, and therefore with insurance included, so that you can compare and know the exact amounts that it will cost you. In general, financial institutions indicate on their advertising offers without insurance. The redemption of credits will therefore always cost you more than what you had planned if you do not inquire about the additional costs. In addition, to open up to competition, when looking for the best offers, it is possible to call on a broker who is committed to finding the best contract according to your needs. However, be careful: before soliciting a broker, make sure that he is well approved, that the companies are mandated to be credit organizations (in general, beware of offers with organizations little known on the internet) . In addition, brokerage fees will cost you money ... But remember that you are looking to save money, so it is probably more beneficial for you to take a little time to analyze the offers on your own. The request for an offer to buy back credit from a banking organization remains a free act. In addition, there is a multitude of websites allowing you to do simulations, to find consumer opinions on different credit redemptions, different organizations. Inform yourself before signing anything.
Finally, if on paper reducing your monthly payments may seem like a godsend, it is not always an economical solution. Indeed, if in the short and medium term, the repayment portion of your debts will be less in your budget, in the long term, for the same borrowed capital, you will repay longer and therefore pay more interest. Extending its repayment period thanks to the repurchase of credits, by contracting a contract with lower monthly payments therefore increases the initial cost of your loans.
This relief is also very dangerous. You will have the feeling that your budget is more important, you will consider making new projects and therefore you may be tempted by the subscription to a new credit, such as consumer credit ... Which will make you start again in the circle infernal and will gradually lead you towards the ultimate situation of over-indebtedness ...
It is the same for the total amount that you will borrow during your credit redemption. When you want to buy back credit, determine the amount you really need. Generally the financial organization will try to increase the amount you will borrow by offering you a new cash loan. By doing this, he tries to attract you by offering you a fund of money allowing you to carry out a project, or simply to lighten your daily life. In reality, it will have increased the capital to be repaid and therefore your repayment period but especially the interest associated with it. You are therefore going against what you were trying to do by carrying out a credit redemption.
Finally, in many cases, early repayment rejection clauses are taken into account in the general conditions of credit redemption. Before signing the agreement, it is important to read it and therefore refuse to sign the contract if this is the case. Indeed, it is more interesting for you to find an organization allowing early repayment, this leaves a certain freedom to be able to repay as you wish and not to be obliged to stay for 4,10,15 or even 20 years under contract with this funder.
A word of advice: before subscribing to the repurchase of credit, check with your banker and other banking establishments, do simulations, analyze whether the cost of your new contract will be much lower than all of your current contracts. (which is unfortunately too infrequently the case), ask yourself the right questions and ask yourself if necessary if the freedom that this short-term credit buyback gives you is valid in view of the higher costs that this entails on the long term…