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Credit consolidation can be a solution to lower your monthly loan payments or avoid a situation of over-indebtedness. Find out what credit consolidation loan actually entails.
Credit consolidation consists of consolidating several loans into a single credit whose duration and monthly payments are calculated according to your budget. What is the point of setting up such an operation? What is its function? Explanations and advice.
The redemption of credits is intended for any borrower having at least two credits in the process of repayment and wishing to rebalance their budget. Indeed, the fact of having only one claim to manage from a single contact makes it possible to clarify one’s financial situation. In addition, the amount of the monthly payments can be reduced by extending the duration of the loan, which leads to an increase in the total cost of the loan or by a decrease in the overall interest rate. Grouping loans can, therefore, be a way to avoid a situation of over-indebtedness. It is then advisable to calculate your debt ratio in order to have a precise idea.
This operation is also intended for borrowers who wish to finance a new project such as buying a car or carrying out work in their accommodation.
The lender can nevertheless refuse a request for credit consolidation for the following reasons: a file in the National File of incidents of payment of loans to individuals (FICP), a file in the Central Check File (FCC), a financial situation too degraded or non-compliance with the admission criteria.
Operating principle of credit consolidation
This solution makes it possible to group together several types of loans: a home loan, an unrestricted personal loan or a consumer loan, a revolving loan. The transaction is subject to the consumer credit scheme if the share of real estate is less than 60% of the total amount borrowed. Otherwise, the rules relating to mortgage loans apply.
The purchase of consumer loans can be made from a specialized financial organization, a bank or a broker. It allows the borrower to make significant savings, especially when it includes revolving credits which are generally associated with high-interest rates. Advance repayment indemnities (IRAs) often have to be paid to the lending institution as soon as the amount of the transaction exceeds 10,000 dollars over 12 months. However, these are capped at 0.5% of the amount repaid if the loan ends in less than a year, to 1% in other cases. You should know that bank overdrafts and revolving credits are not subject to payment of IRA.
In the case of a repurchase of mortgage, the borrower must pay the lending institution an amount generally equivalent to 3% of the principal remaining due or 6 months of interest on the principal reimbursed at the rate of the loan. In addition, there are warranty costs (mortgage or bond), administration fees (which can be negotiated) and any brokerage fees.
5 Tips for Finding the Best Credit Offer
These five tips can help you find the best credit consolidation deal.
Solicit multiple financial organizations
Banks, brokers, online banks, insurers, etc. Many players specialize in grouping loans. Do not hesitate to use an online comparator to sort, save time and save money. For personalized advice and support in building your file, you can also call on a broker such as Partners Finances for example.
Study the profitability of the operation
Buying back credits is not always profitable. If the difference between the rate applied and the new rate of the operation is equal to or greater than 1%, the game may be worth the candle. To get a precise idea of the rates currently used, consult the rate barometers and make simulations.
Save time by preparing documents
Remember to prepare in advance all the documents requested by the bank (proof of income, address, bank statements, amortization schedules, etc.), which will then be able to process your request as soon as possible.
Make no payment before the validation of the transaction
The law protects borrowers by specifying that credit organizations cannot claim any payments until the new loan is released. The online credit consolidation simulation remains free and without obligation.
Negotiate the price of your insurance
Insurance for the new credit may cost more than the insurance for the previous one. It is possible to negotiate the price of borrower insurance by competing. If the group contract offered by your new establishment does not suit you, opt for individual loan insurance providing at least equivalent guarantees.