Credit redemption: a solution to consider with caution
The solution of the repurchase of credit seems interesting: it makes it possible to decrease the amount of the cumulative monthly payments of the various credits in progress and thus, a priori, to facilitate the management of its budget. Beware however: behind the appearance of an improvement in the standard of living hide some more expensive traps in the long run, or the loss of tax benefits. There are some precautions to take to avoid the risks.
Always check the total cost as part of the credit redemption
A repurchase of credit should not be envisaged for the simple reduction of the amounts to be refunded every month, but in its entirety. It is indeed necessary to take into account the costs of repurchase of credit, the indemnities due for early repayment or, in the case of a credit consolidation which includes a mortgage, a mortgage. In addition, the repayment term on a credit redemption is generally longer than some outstanding loans. All of which significantly increase the total cost of credit. In the various proposals, the data to be compared to study the best offer is the TEG (Total Effective Rate) which includes all fees, the only base rate is not sufficient to evaluate the cost of the repurchase of credit.
Credit buyback may involve loss of tax benefits
When a home loan is integrated into a credit union, it means giving up the benefits of the loan, ie the PTZ, the home loan or the 1% housing, as well as any LPA granted . Similarly, the tax credit allocated on the interest of the mortgage loan for the first five years, or seven years in the case of the purchase of housing in a low energy building (BBC), will be eliminated. Some credit buybacks maintain this benefit, so the tax deduction will apply to the interest on the new credit.
Last case where vigilance is required: for rental investments in tax exemption. We must then mention the purpose of the repurchase of credit, namely the repayment or substitution of the initial loan, and this new loan must be stipulated in the tax return as replacing the previous one. In the latter two cases, the interest giving right to tax deduction must not exceed those of basic loans.
Consequences of non-repayment of a credit surrender
As with any loan, a repurchase of credit requires that the borrower be able to repay its installments. A repurchase of credit offers less flexibility than a conventional loan. Agios are higher and the borrower can lose to his home in case of mortgage. It is advisable for insolvent persons to file a file with the commission of over-indebtedness to avoid any seizure. However, that any request for a file within a period close to the request for repurchase of credit can cancel the procedure.
To avoid the pitfalls of credit redemption, compare!
Before launching a credit consolidation operation, it is good to study different proposals. The best is to use a broker, after having verified that it responds well to a regulation as an IOB (Intermediary in banking operation). The various repurchase organizations or banking institutions are also at the disposal of the borrowers to submit their best offer. Credistair also offers its online credit simulator and a contact with an advisor.
Refer to its depreciation schedule
Depending on the duration of the various loans in progress, the repurchase of credit is not a good solution. Indeed, beyond half of the credit repayment, the fees and penalties of the credit consolidation make the operation unsuccessful. It is good to study the amortization tables and the remaining capital due before embarking on a credit consolidation, on pain of leaving with higher monthly payments in interest than repayment of capital. In order for the buyback option to remain profitable, the difference in rates between the two credits comes into play:
- in the first third of your repayment, the redemption is interesting if the rates differ by at least one point;
- the delta must rise to at least two points in the second third;
- beyond that, in the third third of your current repayment, the repurchase of credit is not to be considered.
Study the overall cost of the credit redemption
To avoid the risk of an overall cost higher than the costs of outstanding credits, all credit redemption data must be studied closely:
- longer repayment terms;
It is the total amount of the repurchase of credit which must be factor of the final decision. Other important information: vigilance is required regarding the nature of the rate announced for a credit consolidation. A variable rate proposal, interesting at first glance, can be dangerous in the medium term. In addition, variable rates do not permit the establishment of accurate and fixed depreciation schedules for the repayment period.