To finance projects or simply to improve their quality of life , consumers are looking for financing solutions . The repurchase of credit is one of them. This system, like consumer credit, is governed by French law ( Neiertz law of 1991 or the Scrivener law of January 10, 1978). What is the principle of credit redemption? What are the advantages and disadvantages ? Are there different types of credit redemption? What concepts do you need to know?
Point of information on the repurchase of credit
The term "credit redemption" perfectly defines its objective. This financial operation, which is offered by banking organizations as well as by credit houses, consists of bringing together your current loans (consumer loans such as mortgage loans) into a 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 wish to finance a new project (purchase of a vehicle for example).
The advantages of credit redemption are therefore:
- Have a single loan organization and, therefore, only one monthly payment to pay .
- Have a reduced monthly payment for better flexibility in the management of your bank accounts.
- Reduce its debt ratio .
- Have a single and constant rate .
If this financing solution is attractive, there is a major drawback which is the extension of the term of the loan . It is a sine qua non condition for reducing 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 essentially depend on the organizations. Here are the main ones:
- Buy back consumer loans . Here, only consumer loans are concerned such as the car loan , the loan for work , the revolving credit or the loan for financing a trip .
- Buy back mortgage loans . Here, only mortgage loans are grouped together. If you only have one mortgage, it is possible to renegotiate it to lower the monthly amount of repayments.
- Buy back consumer loans and mortgage loans . Here, the organization agrees to collect all the credits.
Please note, in certain situations, the organization wishes guarantees. It could be :
- From a co-borrower : a person (or an organization) acts as guarantor 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 real estate of the applicant. The mortgage is requested during a restructuring of the mortgage loan with consumer loans. 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 of being paid in the event of unforeseen events ( accident, dismissal, death ).
Vocabulary of credit redemption
In order to properly prepare for your meeting 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 specific 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 : it is a contract that protects your credits and an additional guarantee for the lender. In the event of an unforeseen event ( dismissal , for example), borrower insurance takes over to honor the payment of monthly payments.
Debt capacity (also called repayment capacity ): this is the amount of money you have after paying all your charges . From this sum, it is possible to determine the monthly payments and the duration of a loan.
Capital remaining due : 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 credit.
Long-term credit : if the duration is greater than 7 years then it is a long-term credit. Otherwise, the financial advisor uses the short term credit term.
Mortgage : Real estate placed in guarantee by its owner. In the event of non-payment, the organization can sell the mortgaged property.
Monthly payment : this is the amount of money that you pay each month to the lender to repay the loan.
Over-indebtedness rate : this is the ratio between resources and charges . If the rate exceeds the 33% threshold, you are considered over-indebted.
Variable rate : this is the interest rate on your loan . It can be revised. The amount of reimbursements may therefore vary.
Fixed rate : this is the interest rate on your loan defined in the loan offer and which will remain the same throughout the term of the loan.