October 10, 2019

Low interest rate: a boon for credit consolidation

At a time when credit rates are at their lowest, we come back to the advantages of credit consolidation and set out below a set of advice and concrete cases in order to help the French to better understand the process of consolidating their credits.

The 3 formulas for grouping credits

The 3 formulas for grouping credits

  1. The candidate for the combination is a tenant, that is to say that he is not the owner of a property and / or does not reimburse a mortgage allowing him to put his property as collateral. We will then speak of a repurchase of consumer credit without any real guarantee.
  2. The candidate for the combination is the owner of his property or accessing the property (that is to say holder of a mortgage) but does not wish to back his property as real guarantee to his operation of grouping of credits, we will therefore also in the case of a repurchase of consumer credits without real guarantee despite the fact that the borrower owns a property or is accessing the property.
  3. The candidate for consolidation is the owner of his property or acquiring property (that is to say holder of a mortgage) and this property will serve as real guarantee for his operation of consolidation of credits. We will then speak of mortgage loan redemption.

Robot portrait of candidates for credit consolidation

Robot portrait of candidates for credit consolidation

  1. 1 If he is a tenant

Average refinancing amount: $ 30,000 over 9 years
Average net household income: $ 2,000
* Average nominal rate: 3.70%
Age: 40
Average number of loans before restructuring: 5

  1. 2 If he owns without mortgage guarantee on the grouping of credits

Average refinancing amount: $ 50,000 over 10 years
Average net household income: $ 3,500
Average nominal rate: 3.70%
Age: 40
Average number of loans before restructuring: 8

  1. 3 If he owns with mortgage guarantee on the grouping of credits

Average refinancing amount: $ 160,000 over 20 years
Average net household income: $ 3,500
Average nominal rate with guarantee and real estate share greater than 60%: 2.05%
Average nominal rate with guarantee and real estate share less than 60%: 2.70%
Age: 40
Average number of loans before restructuring: 8

The benefits of this practice

The benefits of this practice

  1. 1 Lower your monthly payments

Why ? Simply because of the lower interest rate.

Take the example of an individual who has to repay one or more consumer loans monthly, with rates between 4 and 10%; if all these credits are combined into one, which is more with a much lower rate, mathematically his overall monthly payment will decrease and his effort rate will considerably decrease

Maël Bernier, Our Director of Communication and Spokesperson

  1. 2 Fund a new project

Thanks to the lower monthly payments obtained with the consolidation of loans and the lower rates, it is possible to release a cash envelope to finance a new project. Indeed, the drop in monthly payments caused by this consolidation makes it possible to take out a new loan without increasing previous repayments. We thus benefit from more cash without paying more each month.

For cases of high over-indebtedness, buying back credit is a good way to give yourself some air and time to think about stabilizing your financial situation.

  1. 3 Switch to fixed rate

When several loans are available, some may have been signed a few years ago at variable rates, and even be renewable. The grouping of credits can therefore make it possible to globalize all the loans on the same line with a fixed rate which will not move during the repayment. With the low rate period that we are currently experiencing, the advantage is not negligible because it is the assurance of a fixed monthly payment without any variation over the remaining term.

  1. 4 A single loan with a single organization

No more multiple withdrawals from your account. A single loan with a single monthly payment which will greatly facilitate the management of your accounts and the control of your personal finances.

Our concrete cases

Our concrete cases

Example repurchase of mortgage credit (the case of a single mother):

** Jeanne, 54, is divorced and a single mother of 3 dependent children for whom she receives $ 1,700 in support payments. She is a nurse, collects $ 2,600 per month and pays 3 consumer loans which enabled her to finance the change of her roof, a vehicle and the higher education of her children.

She wants to make a credit consolidation to find a living to allow her to breathe at the end of the month and bail out her overdraft.

Net income: $ 4,300 net / month.

Accessing ownership of property worth $ 400,000.

Monthly credit of: $ 1,045 per month.

Situation before Situation after refinancing Gain
1 mortgage of $ 133,690 at 4.2%
3 consumer loans for an outstanding capital of $ 23,000
1 loan only $ 811 per month
** Nominal mortgage loan rate 4.2% and consumer loans with rates at 5% Nominal rate 2.65% over 300 months
Debt before operation: 61% Debt after operation: 20%
Total monthly payment before operation: $ 1,595 New monthly payments: $ 784
A discovery The redemption of its overdraft and cash of $ 3,000

Example buy back of consumer credits from an owner (in the case of a couple):

* Paul, a mechanic receiving $ 2,200 net per month and Marie, a stay-at-home mother, have finished repaying their mortgage for almost 16 years (with a subscription to short-term loans with large monthly payments). They took the opportunity to make an extension so that their 4 children each have their room and renovate their bathroom.

Their children are grown up and some of them pursue higher education. Paul and Marie wish to have recourse to a grouping of credit to find breath of daily life:

Net income: $ 2,200 net / month.

Monthly credit of: $ 1,142 per month.

Situation before Situation after consolidation Gain
4 consumer loans for a total of $ 36,000 1 single loan of $ 38,500 $ 598.43 per month
Average nominal rate: 7% Nominal rate of 4.37% over 84 months
Debt before operation: 51% Debt after operation: 25%
Total monthly payment before operation: $ 1,142 Monthly payment after operation $ 543.57
A discovery The redemption of its overdraft and cash of $ 3,000

Example buyout of a tenant’s consumer credit:

Jean and Jana are in a common-law relationship with a dependent child. Monsieur is a civil servant and Madame is a nurse. After obtaining Jean’s assistance, he was transferred to Paris. They took out loans to finance the move and furnishings.

In addition, Jana not having finished her studies, took out a loan to finance her last year. Also, Jean and Jana come from the meeting, one of their relative died, they had to pay part of the funeral expenses thanks to a loan.

They want to use a credit union to pay their rent arrears and get cash to finance a trip to the meeting, see their family and introduce their son.

They also have an LOA (rental with option to buy their car) of $ 513.70 per month which they wish to keep dependent:

  • Net income: $ 4,000 net / month.
  • Monthly rent: $ 831.86
  • Monthly credit of: $ 1,045 per month.
Situation before Situation after operation Gain
10 consumer loans and rent debt for a total of $ 27,800 1 single loan of $ 38,400 $ 718.33 per month
Average nominal rate 9.5% Nominal rate of 4.64% over 96 months
Debt before operation: 58% Debt after operation: 40%
Total monthly payment after operation: $ 1,207.62 Monthly installment of $ 489.29
$ 8,000 cash

* Fixed rates excluding insurance
** In order to respect the anonymity of the witnesses, their first names have been changed.

written by Lottie Walter - Posted in Uncategorized

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