Too high monthly payments, too high debt ratio, willingness to renegotiate its borrowing rate … For various reasons, any borrower with several outstanding loans may one day have to wonder if it is wise to redeem them, and above all, when to make this hypothetical repurchase of credit. Is there a better time than another to make a request for repurchase of loans from the bank? Let’s study the question!
Redeeming your loans: a financial transaction, several scenarios
Whether it is a consumer loan buyout or a home loan buyout, the principle remains the same: the bank consolidates the borrower’s different loans, while extending the duration of refund. Instead of having several monthly payments at different rates to pay, the borrower has only one, at a single rate and at the lower amount. The repurchase of credit is a solution if the attempt at renegotiation with the current bank does not succeed. The borrower then files his file with another bank. You should know that a borrower can redeem his loans as many times as he wishes, as long as he justifies the usefulness of the operation.
Please note: prepayment penalties and administration fees
Having your credits redeemed by another bank may give rise to prepayment penalties (to be checked on current contracts). If necessary, for the repurchase of credit to be attractive, the borrower must ensure that the profit on the total cost of the credit is sufficient to cover these penalties. Without forgetting to take into account any administrative fees applied by the new bank.
Now, how do you know exactly when to buy back credit? In fact, several scenarios can emerge …
When to buy back consumer credit?
The repurchase of consumer credit is particularly interesting if the borrower has revolving credits, the rate of which is often very high. An opportunity to renegotiate the current rate, and thus, lower the amount of his monthly payments to see more clearly in his budget. This can concern a newly separated borrower or a young retiree wishing to be able to save, or even future young parents wishing to clean their baby’s room before his arrival, without having to take out a new loan. The borrower may also simply want to assume his monthly expenses more serenely (rent, insurance, etc.).
When to buy a mortgage?
The question of a repurchase of mortgage can in particular arise if the borrower borrowed at a higher rate than the current rates to finance his housing. Even a lower rate of just one percent represents significant savings for a long-term loan.
Thanks to the renegotiation of its borrowing rate with a new bank, it will be able to:
- either decrease the amount of his monthly payments without (too) lengthening the duration of the credit;
- or, conversely, reduce the repayment period without affecting the amount of the monthly payments.
Such an operation can be done, among other things, for the reasons mentioned above. The borrower who owns rental accommodation can also make this choice if he wishes to reduce his debt ratio in order to finance, in the long term, renovation works, for example.
Good to know: additional credit possible
In all cases, if the borrower needs additional cash to secure his back or finance a new project, it can be included in the loan repurchase. This is sometimes even the main reason motivating borrowers to redeem their loans. The bank will then study its file and will only give a favorable opinion if its situation allows it.