The credit consolidation attracts more and more French people every year. If it stands out for its simplicity, the operation is not without danger for borrowers. The point on the operation, the advantages and the disadvantages of the repurchase of credit.
Credit consolidation how it works – istock-sturti
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Consolidate your loans
The consolidation of credit, or “repurchase of credit” is an operation which consists in restructuring its debts by bringing together part or all of its credits (mortgage, consumer credit, private credit, business credit, etc.) into just one. The borrower uses an organization specializing in credit redemption, which repays his loans and builds a single loan by bringing together all the old ones. The user will have to reimburse it in a single monthly payment. The organizations that carry out credit redemptions are owned by banks or institutions specializing in consumer credit.
Advantages
The operation has several advantages for users, the first being the simplification of financial management, which ensures better visibility of personal finances. The second advantage usually put forward by lending organizations is the establishment of a single rate, generally more advantageous than the rates of consolidated loans. Indeed, the credits collected benefit from a single rate, which is defined at the time of drafting the loan offer. In certain cases, the consolidation of credit makes it possible to significantly reduce the interest rate, thanks in particular to the extension of the duration of the loan. The financial impact is also felt in the restructuring of loan insurance. Thanks to the repurchase of credit, the borrower lowers his debt ratio and moves away from the risk of over-indebtedness, while making sure to gradually regain financial stability.
The inconvenients
The repurchase of credit also has its share of disadvantages. By opting for this operation, the user agrees to change management body and therefore lose the loyalty relationship that he potentially had with his former banking establishment, as well as the advantages that he had been able to negotiate with him. Who says credit redemption also means an increase in the duration of the loan. This translates into lower monthly payments and an increase in the total cost. Before signing the repurchase agreement, the user must therefore pay as much attention to the increase in the overall cost of credit as to the proposed interest rate. Moreover, insofar as the repurchase of credit enters within the framework of a negotiation with a new organization, the operation naturally involves new expenses, like the expenses of “release”, which put an end to a mortgage. The user will also have to pay the early repayment indemnities (IRA) to his former banking establishment. They are capped at 6 months of interest on the capital remaining to be paid, within the limit of 3% of this capital. Depending on the organization, the user will finally pay administrative or brokerage fees, generally capped at 1% of the amount of the pooled credit. These costs are generally integrated into the overall amount of the new loan, in order to reduce the impact on cash flow. In any case, the repurchase of credit is not an innocuous operation. Under its accessible exterior, it remains subject to a feasibility study carried out by credit institutions. The borrower is therefore not guaranteed to obtain the consolidation of his loans if the financial institution considers that it does not meet its admissibility criteria.
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