Credit redemption and credit consolidation are terms often confused in everyday language. Even if the common objective is to lighten its debt by reducing the amount of its repayments through a monthly payment and especially a single rate, the financial products are somewhat different. Explanations.
The credit consolidation to streamline its current borrowings
The purpose of credit consolidation, or credit restructuring, is to balance a household’s budget. It consists of borrowing different loans to bring them together in one. The most common formula is the purchase of mortgage credit with a mortgage, or the consolidation of several credits conso no mortgage.
The duration of the new credit is variable: it can be spread out over 5 to 30 years depending on the amount of the loan and the subscriber’s income. In France, the debt ratio is capped at 33% of its resources. The advantage of staggering repayments over a rather long period is that the monthly payments will be significantly reduced. Nevertheless, the total cost of credit will be impacted. The longer the period, the more expensive the credit will be. That’s why it’s better to check the total cost of the new loan before committing and compare it with other offers.
The repurchase of mortgage credit to change the conditions
In this case, a financial institution takes over the mortgage initially subscribed when buying a property. The demands are currently motivated by lower interest rates. The borrower rightly wants to reduce his monthly payments or shorten the repayment period. The new loan is thus used to repay the old loan in advance.
The repurchase of real estate credit generates unavoidable expenses:
- prepayment charge of 3% of the outstanding amount or 6 months of interest;
- notary fees for the registration of a hypothec.
Again, we must also compare the offers: the APR, fixed or variable, the cost of insurance, the duration of the contract.