How does the credit buy-back work?
With the critical conjuncture which does not allow households to build up savings and even to repay their monthly loan payments, we note an increase in over-indebtedness files with the Lite Lender. The repurchase of credit is the most known solution to avoid the recourse to the commission of debt. This solution makes it possible to better manage the different monthly payments spread over different deadlines.
The principle of this assembly is simple. The lender or bank balances the borrower’s outstanding loans by purchasing them from its former creditors. The borrower then benefits from a single loan with a single rate and a lower monthly withdrawal amount. The reduction in monthly payments can indeed reach 60%. In practice, if before the operation, a borrower had to repay 1,200 USD per month with his different monthly payments, after the implementation of this operation, he will only pay 720 USD. The repurchase of credit is also synonymous with lengthening the duration of repayment of the debt. Thanks to this arrangement of this new classic loan, the candidate for redemption can benefit from a reduction in its debt ratio and a possibility of regaining flexibility in the management of its finance.
Depending on the subscriber’s professional and financial situation, the lending institution may accept the borrower’s request for additional cash. This optional amount which will be integrated into the arrangement does not generally exceed 10% of the buy-back except in the context of a mortgage buy-back where a real estate guarantee must be provided.
What is the cost of this operation?
This repurchase which allows a reduction in the monthly charge with for consideration an extended duration of the loan can be expensive if the candidate for the loan does not play the competition of the rates on the market and if he does not negotiate the various parameters of this montage. It is for this reason that it is recommended to use a buyback simulator or a broker specialized in this transaction.
Debt consolidation, like most banking transactions, involves additional fees that affect their cost. Among these costs are:
- application fee. These costs constitute 1% to 7% of the total cost of the operation. A broker can negotiate these fees if one of its banking partners makes the purchase.
- the early redemption indemnity (IRA) which varies according to the financial organizations. This amount is notified in the credit offer obtained by the borrower. For example, for the reimbursement of a consumer credit taken out after May 1, 2011 and with an amount exceeding 10,000 USD, the IRA capped at 0.5% of the redemption if the repayment period is less than one year from the transaction and 1% if it exceeds one year from the transaction date. For a repurchase of mortgage, it is necessary to envisage 6 months of interests of the capital or 3% of the capital remaining due. The broker can also negotiate these fees.
- the borrower must take out loan insurance that covers the risks of disability, death and job loss. The cost of this insurance depends on the age of the borrower, his state of health and the guarantees taken out. If he is young, non-smoker and in good health, the borrower insurance is around 0.20% per year of the amount of debts to be consolidated. For other cases, it can reach 0.70% per year of the buy-back.
- Finally, the lender may require the guarantee of a surety company to protect against the default of the borrower.