The pooling of credits, long reserved for households in difficulty, is opening up more and more new audiences, in search of budgetary room for maneuver. Its cost to the borrower, however, remains higher than a conventional loan. Here’s why.
+ 20%: this is the spectacular increase in loan consolidation requests recorded in 2020 by one of the players in this market, Meilleurtaux. Strong growth demand, therefore, which also tends to diversify. Admittedly, the pooling of credits remains a remedies for poorly indebted households who wish to regain budgetary margins. But more and more often it attracts another borrower profile, who wants to restructure their debt to free up cash for a new project. It is a product that is less fearful, which is better understood as a budget management tool, confirms Mal Bernier, spokesperson for Meilleurtaux.
The pooling of credits, this trick to finance a new project
This gentrification, however, does not change one feature of the credit pool: it remains expensive for the borrower, relative to a conventional amortizing credit. What are the components of its price? Is this surcharge justified? Here’s what to remember.
The interest rate
The first component of the price of a loan consolidation is of course the interest rate. The total cost of the loan will, in fact, be all the more important as this rate is high, and as its repayment period is long.
Credit pooling, by definition, involves households that are already in debt, sometimes beyond reason. Specialized banks therefore integrate a risk premium their rate grid. However, they are not so far removed from those in progress for traditional operations.
It all depends, in fact, on the type of credit pool. We can distinguish 4, according to 3 criteria:
- if the grouping is secured or not by a mortgage on real estate;
- if it belongs under the consumer credit or immo credit scheme. Reminder: for a grouping to be considered as a real estate loan, the share of the property loans must exceed 60% of the amount of the debt;
- if the borrower is owner or not of his home.
What has changed? Many things. The mortgage guarantee – in short, the possibility for the bank to force the borrower to sell his real estate in case of country – or the simple fact of being the owner secures the bank, which will be more willing to make an effort on the rate. As for the legal regime, it changes in particular the reference wear rate, that is to say the maximum annual percentage rate (APR) applicable at an instant T which is lower for immo credits than for consumer credits. In the case of a consolidation under an immo regime, the APR is currently capped at 2.52% or 2.60%, depending on the repayment horizon. Under the consumer plan, the banks have more margin, with a legal maximum currently set at 5.23%.
For the example, here are some rates offered by Meilleurtaux.com for the 2nd quarter of 2021, for the correct files and according to the repayment period.
Real estate regime with mortgage guarantee:
- 1.95% (8-15 years)
- 2.10% (15 to 20 years)
- 2.25% (20 25 years)
Consumer plan with mortgage guarantee:
- 2.90% (8-15 years)
- 3.25% (15-20 years)
- 3.30% (20 25 years)
Consolidation without mortgage guarantee:
- for owners: 3.15% (5-6 years) 3.99% (12-15 years)
- for tenants: 3.37% (5 6 years) 4.13% (10 12 years)
To consult: our barometer of real estate rates
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The different fees
The credit consolidation market has the particularity of being 100% intermdi: the banks which lend, often specialized subsidiaries of the large brands, do not have a storefront and therefore do not directly receive loan applicants. Those are intermediaries, brokers or agents, who take care of it. Their fees are thus part of the Incompressible costs of a consolidation operation, include in the APR.
What do these commissions represent? Sylvain Mharche, Managing Director of Partners Finance, has agreed to give us some average figures currently applied:
- 1.77% of the amount borrowed, on average, for a grouping under a mortgage loan scheme with mortgage guarantee;
- 3.17% under the consumer credit scheme with mortgage guarantee;
- 2.39% without mortgage guarantee if you are tenants;
- 3.20% without mortgage guarantee if you are owners.
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To this can be added administrative fees charged by the bank, also included in the APR. They are generally, according to Sylvain Mharche, 1% of the amount borrowed, with a ceiling of 1500 euros. Finally, mortgages require a notarial deed. It is therefore necessary to provide notary fees.
Borrower insurance
In France, loan insurance is optional. However, it will be systematically imposed by the bank and included in the APR, if the grouping concerns a real estate loan. According to Mal Bernier, it is often the cost of insurance that blocks consolidation operations, because of the wear rate. As soon as insurance is expensive, it becomes very complicated. A simple ppin of health and has no more.
Attention lIRA!
The borrower who wishes to consolidate his debt must have this in mind: it will also be necessary to include in the loans to buy back the amount of advance repayment indemnity, payable to the bank holding the receivable, up to 1% of the remaining capital in general, to which are added any administrative fees. These charges, however, are not included in the APR.
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Why is it more expensive than a classic credit?
The answer to this question can be summed up in one sentence, pronounced by Mal Bernier, of Meilleurtaux: The intermediary does most of the work !. The preparatory work on a credit consolidation file is, in fact, incommensurate with a traditional credit. A real estate loan broker will be able to investigate between 10 and 12 cases per month, explains Sylvain Mharche. In the context of consolidations, the average is 2.5 cases per month.
What explains this cart? The need toanalyze in depth the financial situation of the candidate, to make sure that the remedy will not be worse than the disease. We finance part of a customer’s liabilities, so we have to be sure that the bank can take this risk, continues the CEO of Partner Finances. We sometimes hear borrowers who are up against the wall and who may be tempted to cover up some of their difficulties. Our first reflex is to find out if he does not have a second hidden bank account.
This investigation involves in particular an in-depth analysis of account statements: painstaking work, still largely carried out by hand, looking for any inconsistencies. But also by long face-to-face interviews, during which the intermediary reconstitutes thepersonal, professional and financial history of the candidate. This weighs for 40% of the decision whether or not to fund the case. A very cumbersome process, which logically has a cost and explains the sensitivity of intermediaries to the issue of the wear rate. Very good files, with a lot of real estate, are no longer eligible because of wear and tear, even reducing costs to zero. It is the attrition rate that determines our compensation, concludes Sylvain Mharche.
Redemption of credits: reduce your monthly payments
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