Early credit redemption, when is it possible? – Loan consolidationOn August 10, 2019 by admin
Want to see the effects of a pool of credits on your finances? (only one monthly payment, reduced up to 60%, possibility of request for cash, a single interlocutor …)
Still called credit consolidation, credit redemption is a process of consolidating multiple existing loans into one.
The borrower has the possibility to buy several types of loan (mortgage, revolving credit or consumer), in order to benefit from a single loan payment adapted to his budget and accompanied by a single borrower insurance.
The subscriber also has the option of including different debts as part of his credit consolidation: family debts, bank overdrafts, tax debts, delay of co-ownership fees and much more. However, can a prepayment of a credit redemption be made?
Forms of repurchase of credit
The purchase of mortgage credit
This type of redemption concerns the mortgage. It is aimed exclusively at homeowners and is insured by the mortgage of real estate.
Your lending organization buys your loans from your various creditors to establish a single credit for reduced monthly payments for up to 25 years.
Consolidated credit amounts are generally larger than for a consumer credit purchase. Thus, your establishment guarantees the operation with your property.
If the decision has already been taken to secure your home mortgage with a mortgage, the one put in place for the redemption will replace it.
The purchase of consumer credit
It allows people who have accumulated many consumer loans to collect them in one to reduce their monthly payments. If you have a home loan that you do not want to consolidate with your credits (auto loan, personal loans, etc.), you can also use it.
Your financial institution will repay your credits to your various creditors and grant you a new loan of the amount owed. It may also grant you additional cash.
How to redeem credit?
To perform such an operation, it is advisable to go through online comparators like ours to find the best offer.
You can also find a borrower insurance adapted to your needs. Regardless of whether you are looking for a loan buyback for your home or property loan, you will certainly find the ideal offer.
You can also turn to your financial institution or seek the services of a specialized broker.
Whatever institution you choose, you will be asked for supporting documents to study your creditworthiness. These documents vary according to the banking organizations. For example, the debt ratio, a proof of a professional activity and much more.
Is it possible to prepay your credit redemption?
Whether it is a mortgage, consumer credit or other credit, it is important to note that any credit commits the borrower who contracts it and must be reimbursed, whether it is anticipated or not. It is the same for the repurchase of credit.
In effect, the redemption of one or more credits may result in the payment of an early redemption penalty.
This prepayment penalty represents an indemnity for the lender when the loan applicant fails to meet the schedule and makes a partial or full refund of amounts due before the end of the contract.
Early repayment of credits
The early repayment of a consumption credit is authorized and framed by the Consumer Code, which stipulates that the loan applicant can always make a partial or total pre-payment on his own initiative, of the loan he has received.
Since the Lagarde Act, prepayment penalties may be applied on conso depreciable loans, beyond a ceiling of 10,000 euros of prepayment for periods of one year.
Early repayment of a mortgage
For the mortgage loan, the conditions are also framed by the code of consumption. According to the texts governing this credit, the reimbursement allowance must be less than 6 months of interest on the amounts repaid at the average loan rate.
There is also a second limit, which stipulates that the indemnity must never be greater than 3% of the capital remaining due before the prepayment.
It should also be noted that the credit surrender agreement may prohibit partial early payment if the amount repaid does not exceed 10% of the initial borrowed capital.
Remember to pay attention to variable rate loans (revolving credit, mortgage, etc.) because the penalty may be increased by compensating interest.
Is it possible to avoid paying a prepayment penalty?
There is no solution to bypass the payment of a partial or full advance payment penalty as long as it is included in the contract.
In other words, if this clause is missing in your contract, your lender can not require you to pay prepayment penalties.
It is therefore important to consult beforehand the various credit agreements (revolving credit, mortgage, consumer credit, etc.) to verify the existence of this clause.
In case of credit consolidation, this compensation is associated with the amount remaining due, and therefore with the new monthly payment.
This saves you from having to make a partial or total refund of the significant amounts during the implementation of the operation. In addition, depending on the credit institution, you have the opportunity to negotiate the fees to reduce the cost of the total costs related to the repurchase of credit.
This is a compensatory measure on the settlement of prepayment penalties.
Some important elements
Whatever the type of credit (revolving credit, mortgage, consumer credit, etc.) that you want to redeem, there are some important elements that you should pay attention during your purchase.
This is particularly the case with your borrower insurance, which is usually offered by the repurchase body. It should be noted that you have the possibility to subscribe to another borrower insurance than that proposed by the credit agency, which often has the disadvantage of being more expensive.
In short, it is entirely possible to repay a loan redemption early. However, supporting documents may be requested by the repurchase body before any repurchase. For example, there is evidence that you have a professional activity.