The credit buy-back solution seems interesting: it makes it possible to reduce the amount of the cumulative monthly payments of the various credits in progress and therefore, a priori, to facilitate the management of its budget. Be careful however: behind the appearance of an improvement in the standard of living are hidden some more costly traps in the long term, or the loss of tax benefits. There are some precautions to take to avoid the risks.
Always check the total cost when buying back credit
A repurchase of credit should not be considered for the simple reduction of the amounts to be reimbursed every month, but in its entirety. It is indeed necessary to take into account the costs of repurchase of credit, the indemnities due for early repayment or, in the case of a credit consolidation which includes a mortgage, a mortgage. In addition, the repayment duration on a loan repurchase is generally longer than certain loans in progress. All of which considerably increase the total cost of credit. During the various proposals, the data to compare in order to study the best offer is the TEG (Total Effective Rate) which includes all the costs, the basic rate alone is not sufficient to assess the cost of the loan repurchase.
A credit buyback can involve the loss of tax benefits
When a mortgage is integrated into a credit consolidation, this implies giving up the advantages linked to the loan, namely the PTZ, the loan for social accession or the 1% housing, as well as any APL granted . Similarly, the tax credit allocated on the interest on the mortgage for the first five years, or seven years in the case of the purchase of housing in a low energy building (BBC), will be abolished. Certain credit redemptions allow this advantage to be maintained, the tax deduction will then apply to the interest on the new credit.
Last case where vigilance is required: for rental investments in tax exemption. It is then necessary to mention the vocation of the repurchase of credit, namely the repayment or the substitution of the initial loan, and this new loan will have to be stipulated in the income statement as replacing the previous one. In the latter two cases, the interest giving rise to a tax deduction must not exceed that of the basic loans.
The consequences of non-repayment of a credit repurchase
As with any loan, a repurchase of credit requires that the borrower be able to repay its maturities. A loan repurchase offers less flexibility than a conventional loan. The agios are higher and the borrower can lose up to his home in case of mortgage. Insolvent persons are advised to file a file with the debt relief committee to avoid any foreclosure. Note, however, that any request for a file within a period close to the request for credit repurchase may cause the procedure to be canceled.
To avoid the pitfalls of buying credit, compare!
Before launching a credit consolidation operation, it is good to study different proposals. The best is to call on a broker, after verifying that he is answerable to a regulation as an IOB (Intermediary in banking operation). The various buyout organizations or banking establishments are also available to borrowers to submit their best offer. Lender also offers its online credit simulator, then a contact with an advisor.
Refer to its amortization table
Depending on the duration of the various loans outstanding, the repurchase of credit is not a good solution. Indeed, beyond half of the credit repayment, the costs and penalties of the credit consolidation make the operation unsuccessful. It is good to study the amortization schedules and the remaining capital due before embarking on a credit consolidation, under penalty of leaving with monthly payments heavier in interest than in repayment of capital. To keep the option of buying back credit profitable, the difference in rates between the two credits comes into play:
- in the first third of your reimbursement, the redemption is interesting if the rates differ by at least one point;
- the delta must climb at least two points in the second third;
- beyond, in the third third of your current repayment, the repurchase of credit is not to be considered.
Study the overall cost of buying back credit
To avoid the risk of an overall cost greater than the costs of outstanding loans, all the data on the repurchase of credit must be studied closely:
- longer repayment terms;
- booking fees;
It is the total amount of the credit repurchase that must be a factor in the final decision. Other important information: vigilance is required as to the nature of the rate announced for a credit consolidation. A variable rate proposal, attractive at first, can prove dangerous in the medium term. In addition, variable rates do not allow the establishment of precise and fixed amortization schedules for the duration of the repayment.