The principle of debt consolidation is simplified so that borrowers reset their financial situation and pay only one monthly payment. The duration of the loan is lengthened, the monthly payments are transformed into a lower monthly payment and the new credit is the opportunity to consider projects hitherto difficult to reach.
Debt consolidation: for whom and why?
The principle of redemption of credentials is aptly named: the borrower subscribes to a new contract with an organization to buy back its credits and consolidate them into a single monthly payment. The organization then refunds the credits to the various banking institutions and sets up a new single rate loan that the borrower undertakes to repay.
More and more French people are being seduced by the purchase of credit because it reduces their monthly payments while simplifying their banking situation.
Let’s say that Mr. Dupont has a home loan for his restaurant, a car loan for his delivery van and a consumer loan for the purchase of his professional equipment. Each loan is underwritten in a different institution at similar rates. Mr Dupont has trouble seeing things in the middle of all these creditors and would like to reduce his monthly payments to invest in the decoration of his room. He is therefore seriously considering taking the plunge but does not necessarily know the essential credit surrender condition: the amount of his debt ratio.
Credit Buy-Back Condition: The Issue of the Debt Ratio
The debt ratio is set at 42% as part of a request for the repurchase of credit. This is the repayment capacity of the borrower, calculated from his income and after deduction of recurring expenses.
If our Mr Dupont receives a net monthly income of 1800 € and does not pay rent, his maximum repayment capacity could reach 756 € / month if he redeems all his credits. The sum lent in connection with the redemption of the credits can not, therefore, exceed this amount.
And after? Long-term benefits
The constraint n ° 1 of the debt consolidation is the interest rate (APR), often very high. The amount of the new loan therefore often exceeds all the sums borrowed for the credits redeemed, but the monthly payment is lower. Why? Because the repurchase of credit is a long-term loan meant to facilitate the daily projects of the borrower by allowing him to spread his new debt. People in debt distress are also many to redeem their credits to allow their monthly budget to become more flexible.
More details on this theme
- Which organization has the authority to buy back a credit?
- Credit buyback without proof: is it possible?
- Why hire a broker to redeem his credit?
- Which bank to choose to redeem its credit?
- What redemption fees for a mortgage?