When the accumulation of monthly payments upsets the household budget, credit consolidation allows to find the right financial balance.
One for all and all for one is the motto used by the banker or broker when he comes to the aid of borrowers with too much debt by offering them a single loan. To achieve this, he can use the "credit consolidation" which serves to restructure the debt in order to reduce the monthly payments. The result is the greatest benefit for the borrowers who find a better financial health.
Why consolidate credit?
Different consumer products, real estate... require the use of credit because they represent a too important expense. If safeguards exist not to exceed 35% of indebtedness, this ratio can vary according to events. If a borrower loses his job, his income will drop, which will directly impact his debt ratio. Similarly, if he takes out a consumer loan, his "monthly living expenses" will decrease due to this new monthly payment!
However, the current interest rates are an interesting opportunity since they are around 1.50%. The cost of credit remains very attractive in order to buy back loans taken out at rates that are often much higher! Our advice: ask your banker or broker for a simulation to evaluate the gains.
HOW TO PAY OFF YOUR DEBT ?
Credit consolidation consists in buying back the different loans in progress in order to combine them into one. To check the opportunity of the operation, the banker carries out various simulations allowing to play on :
- a more competitive rate,
- an extension of the repayment period,
- a lower monthly payment.
Our advice: take advantage of the low interest rates to buy back your loans and take out more competitive ones.
Once all these calculations have been made, the result is a new loan that results in a lower monthly charge than in the previous situation. The advantage of this solution also lies in the fact that you have a single contact person who is fully aware of your client's banking situation.
What are the benefits?
Since 2013, the banking institution must provide an information document on the conditions of the credit consolidation. This document is given at the same time as the consumer or real estate loan offer and includes a table comparing the current loans with the characteristics of this repurchase.
At the bottom of this document appears the gain or extra cost of the operation.
Let's take the example of a couple with a monthly income of €3,400. With a debt of 45% when adding up their real estate and consumer loans, their monthly payment amounts to €1,519 for all their loans. After studying the situation, this household took out a single loan for a monthly payment of €1,017 with a debt ratio of only 30%, after a contribution of €3,000 as precautionary savings. Our advice: take into account the increase in the cost of credit, linked to the extension of the duration of the new loan.
Christophe Rafaillac.