The attractiveness of buying back credits
In the current context of very low interest rates, the repurchase of loans is attracting an increasing number of French people. This operation was also one of the pillars of activity in the sector during the period of slow recovery of new loans. Offered by many banking or credit institutions, it has many advantages.
Presentation of the repurchase of credits
The names buyouts, consolidation, restructuring or grouping of credits designate the same financial transaction. It consists of replacing one or more loans in the process of being reimbursed by a single contract by contacting an organization different from the one that initially granted you the loan to consolidate.
The latter settles all the amounts that you still owe to each of your creditors and offers you a new loan that is reimbursed over a generally longer period in order to adapt the amount of the installments to your income.
Please note, we will not be talking here about the simpler operation which consists in having a current mortgage bought back by another banking establishment. This type of transaction differs from the repurchase of credit assimilated to the grouping of credits in the sense that the objective of the transaction is very particular. The objective of the borrower who redeems his home loan by another establishment is to reduce the total cost of his credit: he will therefore seek a lower rate than that of his current loan. Its objective is therefore not expressly to reduce its monthly payments and its debt ratio.
You can consolidate loans of various types (real estate, cons, staff…). Depending on their nature, there are 2 main types of refinancing:
- 1 Mortgage refinancing relates to a contract whose rate and duration of repayment correspond to those of the mortgage (this can be up to 30 years).
- 2 As for the refinancing of consumer loans, it brings together personal loans (cars, works, renewables, late payments, etc.) and is reimbursed over a maximum of 12 years.
The advantages of credit consolidation
The consequent decrease in the amount of your monthly payments allows you to benefit from a better remain-to-live as soon as the funds are released. If you fear over-indebtedness because of multiple loans, if you face an unforeseen event or encounter temporary financial difficulties, you save a little time to rebalance your finances. And if you need cash to finance a project, you can consider it more calmly.
In addition, you no longer have to juggle several creditors and several debits at different amounts and on different dates. Now, by only dealing with the company that bought your debts, you pay only one monthly payment. Tracking movements on your account statements, and therefore managing your finances will be much simpler and faster.
Finally, the grouping of credits is accessible to a wide audience. In the case of a home loan, it is intended for the owners of their main residence, but also for tenants, including borrowers hosted by a third party or housed by their employer.
The conditions for drastic reduction of monthly payments
The reductions in monthly payments result from the lengthening of the repayment period. However, this extension will increase the total cost of credit.
Who is the loan buyback for?
The loan repurchase is intended for borrowers holding at least two credits in the process of repayment and wishing to reduce their monthly payments. Behind the attraction of financial gain, the motivations differ, but the most frequent are:
- Need to rebalance finances
Credit repayments may consume too much of your monthly income. Thanks to their collection, the amount of your monthly payments immediately drops. You have less trouble making ends meet, and you thus have a more substantial living at the end of each month.
- Need additional cash
You have a project to finance (acquisition of a car, carrying out work in your accommodation, travel…), but by taking out another loan, all of your monthly payments would put your finances in the red. Some companies offer to integrate a new loan among the credits to be grouped, which allows you to contain your monthly payments.
- Realization of a real estate project
Investing in real estate requires a large sum of money, which you are unlikely to obtain from lending institutions if you have an already high debt ratio. To lower it below the allowable limit, assess the impact of a grouping of loans on your current financial situation. A lower debt ratio shows the banks that you have the repayment capacity necessary for a new loan, and encourages them to grant you the requested funds.
- Decrease in income
Different events can decrease your income: long illness or accident, death in the family or birth, divorce, retirement… The part devoted to repaying your loans then becomes too high and affects the balance of your budget. The repurchase credit is thus an effective alternative to put order in your finances.
Profile of beneficiaries
A study dating from 2013 provides information on borrowers who were able to achieve a combination. 65% of them are men, against 35% of women and 62% of owners against 38% of tenants.
Applicants aged 35 to 45 are the most likely to have obtained satisfaction (35%), compared to those aged 45 to 55 (27%), the youngest aged 25 to 35 are only 19%. 80% had a stable professional situation, but 29% only had 1000 $ monthly to live after deduction of their monthly repayments.
In July 2015, Meilleurtaux drew up the standard profile for loan repurchases. He is a 39-year-old borrower, whose net income is $ 3,078. The latter has 3.1 credits to redeem:
- if it only concerns consumer loans, the total amount of the loans is $ 36,253.
- if it includes a mortgage, this amount rises to 195,585 $.
Who can apply?
A request is possible for everyone, whatever the socio-professional category, from employees to traders, liberal professions, craftsmen, etc. Both owners and tenants are eligible. Even those who have already carried out a first consolidation have the right to submit a second request, provided that there is a time limit of one year between the two and that no payment incident has been recorded the first time.
However, some people are automatically excluded : those in a prohibited banking situation and registration with the FICP for tenants.
It can be carried out by the applicant’s usual banker or by a third-party establishment. Recourse to an Intermediary Company in Banking Operation is also possible: it is responsible for finding the offer best suited to the needs of the borrower and takes all the necessary steps.
To accept, the banking organization considers three essential parameters :
- 1 the strength of the guarantee presented by the claimant,
- 2 the risk posed by the latter,
- 3 and the profit that the transaction can generate for the lender.
Persons not concerned by this operation
Any lending institution to which you turn to redeem your credits wants to be sure that the monthly payments are paid on time. Also, it avoids engaging with:
- Persons whose names appear in the Credit Incident Payment File (FICP) or in the Credit Card or Check Payment Rejection File. In addition, you must not have submitted an over-indebtedness file to the Astro bank.
- People over the age of 75, as the risk of non-payment of all of the principal owed is higher. It therefore considers two criteria for accepting or refusing your request: your age at the time of filing the application (75 years maximum) and your age at maturity of the loan (between 80 and 85 years maximum).
In addition to compliance with the above conditions, you will need to provide documents detailing your financial situation (payslips, amortization schedule or maturities of outstanding loans, etc.) as well as a financial guarantee in the form of a mortgage or a deposit.
How does the credit buyback work? And why use this financial package?
Credit consolidation involves consolidating your debts into one with a single financial institution. The operation has three major advantages:
- Improved management of the monthly budget with a single monthly payment of a fixed amount;
- Control of the amortization period with repayments spread over a longer period;
- Reduction in monthly payments up to 60% thanks to the extended repayment period.
- More competitive interest rate (between 5 and 9%) than that of revolving loans or other payment cards in stores (20%).
It is a very practical solution to lower your debt ratio (especially if it exceeds 40% of your income). Indeed, the monthly payments of several accumulated loans weigh heavily on your budget. However, for banks, the maximum rate for living decently is considered to be 33%.
In addition, the reduced and spread monthly payments make it possible to find a more comfortable living-to-live to overcome constrained loads.
Be careful, buying back credits is not always in your favor. If you find yourself in one of the following situations, it is less useful.
- The part already reimbursed on the total of your outstanding loans exceeds 70% ; in this case, you save a few USD compared to your initial monthly payments.
- You anticipate a substantial reduction in your expenses in the near future (more dependent children) or a significant increase in your income (salary increase, collection of interest on an investment).
Its exact impact on your budget
Redeeming your credits consists of collecting them and replacing them with a new single loan from a single financial institution.
Having only one creditor, you facilitate your personal management, because you only have one monthly payment to settle, instead of having several debits on various dates during the month. You always know exactly where your refunds are; moreover, by taking out a fixed rate loan, your monthly payment does not vary until the end of the loan. Result, you see more clearly in your budget.
In addition, the operation allows you to lighten your maturities, because the duration of your loan is lengthened. You are no longer forced to take out additional loans to settle your old debts. It is an effective solution to get you out of the credit spiral and over-indebtedness. With monthly payments adapted to your resources, your debt ratio remains below the 33% recommended by the banks.
As your remainder of living is higher, you have better room for maneuver if unforeseen events occur (health problems, urgent work in your home, etc.) The risks of non-payments or rejected direct debits also decrease. Your financial situation is finally healthier.
Compared to revolving credit, the successive installments of which pay off only the interest, leaving the entire principal to be repaid, the repurchase of credit is more advantageous for you.
Take care of your borrower profile
Precautions to be taken before acceptance
Before accepting a consolidation, whatever their nature, the bank or financial institution needs to have the assurance of being reimbursed according to the agreed terms. Also, to put the odds on your side, take care of your applicant profile.
Stable situation and income
Professional stability is the first essential criterion. Any lender favors people with a lot of seniority within the same company, ideally on a permanent contract, or in the exercise of a liberal profession. Retirees who receive a fixed pension are also appreciated. For all these audiences, the constancy of income is a guarantee of security for the banks.
If you are starting a new job, do not immediately submit your consolidation file. Wait until you are confirmed after your trial period, your banker will be more reassured and more inclined to respond positively to your request.
Personal finances properly managed
Having stable and high income is not enough if you are regularly overdrawn. The bank will indeed look at your account statements to study how you use your money. Regular savings show that you are managing your budget properly and that you will be able to cope with the unexpected. The frequency and amount of your cash outflows are also under the microscope, because they speak volumes about your ability to control your spending.
It will also calculate your debt ratio. It is the ratio between fixed fixed costs (rent, food, loan repayment…) and your monthly income. It should not exceed 33%.
No over-indebtedness procedure in progress
It is an essential condition. If you have submitted a file to the Astro bank over-indebtedness commissions, the law prohibits you from taking out additional loans or repurchasing loans.
If you are the owner of your accommodation, and you are not involved in a deleveraging procedure with the Astro bank, even if you are registered with the FCC, FICP or FNCI, you can find offers for grouping loans.
Likewise, this financial arrangement is recommended for people who are late in paying their taxes, one or more of whose deductions have been rejected, or who have already had their loans redeemed.
The repurchase of credit in France: 1 site out of 2 in violation according to the DGCCRF
In 2015, the DGCCRF published the results of a study carried out by the Electronic Commerce Monitoring Center (CSCE) concerning 249 websites offering the grouping of credits. The results of this investigation carried out as part of the repression of fraud are alarming: unlike Meilleurtauxsolutions, almost half (49.8%) would not comply with the regulations in force.
Many market players are guilty of failure to provide regulatory information to their customers. These offenses would be due either to simple negligence on the part of these professionals, or to a breach of the legal provisions governing the practice.
The checks carried out notably highlighted breaches of identification obligations on the pages of these companies on social networks. Others are accused of non-compliance with laws relating to advertising, including sites that do not indicate the contact details of the advertiser.
But if these anomalies are not necessarily intentional, certain deceptive commercial practices identified by the investigators are really worrying. Scammers have copied the content of consumer information sites on over-indebtedness set up by associations. These bogus sites were used to extract and resell the personal information of registrants. Others offer a supposedly free guide to over-indebtedness, but subsequently require the subscription of a paid subscription in return.
The DGCCRF did not let these transgressions of the law pass without reacting. Following an investigation, she established three minutes, applied for an injunction and issued 120 warnings. The establishments in question are of 2 types: 197 loan companies or intermediaries in banking operations and 52 online portals.
Most offenders take corrective action to fill their gaps in their offerings. In addition, aware of the seriousness of the practices of players in the sector, the organization undertakes to maintain its surveillance in order to protect the most vulnerable consumers. It is also a question of restoring the credibility of companies operating in the field of loan buy-back.