MonthFebruary 2019

Is the consolidation of loan a good solution?



With the current financing conditions and the prospect of reducing its monthly payments, is the acquisition of loans an interest for French households? Our experts offer you a complete tour of the subject to give you a more precise idea of ​​the consolidation of loans.

How the loan pooling works

How the loan pooling works

Firstly, consolidation and regrouping of loans means the same banking operation ( source ), that allowing to gather several loans in one . A borrower with several loans can call on a specialized organization to consolidate its loans. The organization will pay off its current loans and propose a new loan agreement with different repayment terms, ie a longer duration , a single rate and ultimately a smaller monthly payment .

The reduction of the monthly payment is possible thanks to the lengthening of the duration, which can generate an increase of the total cost of the loan. That is to say that the financing will be more expensive in the end but the monthly payment will be smaller , a logical counterpart that rebalances the budget of households owners as tenants .

What to expect with a consolidation of loans?

What to expect with a consolidation of loans?

When the loans are settled , there is often a prepayment charge of up to 3% for real estate loans, unless there is a clause indicating the non-presence of IRAs. Then, the setting up of the financing also implies expenses of files and / or expenses of mandates, to a height of 7% on average of the amount of the file. For homeowners having a property as collateral , it will be necessary to cancel the mortgage and to hand over a new partner to the consolidation of loans , again there are notary fees.

It should be known that all these steps are managed by the specialized agency which is responsible for summarizing all costs and the cost of the operation to the borrower. The latter will only have to sign the offer of a loan agreement to obtain the reduced monthly payment the following month. Consolidation of loans remains a good solution since the reduction in the monthly payment can reach up to 60% of the current total amount . In addition, 1 French indebted out of 2, according to the INSEE, estimates to have monthly payments too heavy, a recourse to the consolidation of loans which is legitimate and which makes it possible above all to avoid financial imbalances .

Loan consolidation: how to consolidate all its debts

What is a consolidation operation?

What is a consolidation operation?


Debt consolidation or loan redemption is a financial operation that aims to consolidate several loans of different durations and rates, in a single operation, in order to obtain a lower monthly payment , but over a period of time. longer repayment .

Debts that can be grouped

It is possible to integrate all loans in progress, whatever their nature:

  • Consumer credit
  • A reserve of money
  • A mortgage
  • A bank overdraft
  • Unpaid invoices
  • Unpaid taxes
  • Personal debts

Find a solution by oneself

When one thinks of redeeming one’s debts, it is generally that one can no longer cope with its maturities and that its debt is well above 33% of its income. Whatever the urgency of the situation, we advise you to resort to consolidation only as a last resort. The first step is to look for solutions by oneself.

3 steps to follow step by step

Make a clean cut in some of his monthly expenses.

List the monthly withdrawals on your budget and eliminate those that can be stopped: a subscription to a bouquet of pay channels, a phone plan too high and too often exceeded. If possible, opt for a small secure package. Find among your current credits, those that end soon and try to get a bank overdraft or a family loan to clear them. The repayment of an overdraft or a family loan often has the advantage of being flexible in terms of repayment .

Renegotiate the staggering of each debt

If a restriction of your expenses is not sufficient, try to negotiate directly the staggering of your debts with each creditor. Contrary to popular belief, know that it is often possible to obtain a spread. This is the case for example with the tax administration, which is much more conciliatory than we think. If you have a mortgage, check in the preliminary offer if you have the modularity options that reduce the monthly payments up to 30% or even suspend for a year .

You should also know that credit institutions prefer to spread the debt rather than having to do the debt commission of the Bank . This is probably the case of traders to whom you owe money and who appreciate more a direct approach to their debtors rather than receiving a letter from the commission informing them of your financial difficulties.

Finally, it is recommended to present a reasonable schedule and especially accurate. Do not sow doubt in the minds of your creditors by proposing to settle in the year or the months to come or even worse when your situation has improved. Make your proposals in writing by committing yourself to meet deadlines .

Set up an over-indebtedness file

If your attempts have not been successful and before considering meeting banks to redeem your loans, we advise you to set up an over-indebtedness file . This is completely free, the commission in charge of studying your file trying above all to help you.

If your application is considered admissible, it will contact all your creditors: banks, specialized institutions, suppliers, administrations … It will propose an amicable settlement of your situation and a spread of your debts. It is highly advisable to prove to the commission that you are willing to make efforts.

It is therefore essential, once the file has been filed, to stop any expenditure that is not essential. Please note that your application has the immediate effect of you file the (credit repair incidents file to the individual). Your bank will know immediately before the commission is determined on your file.

If your situation is such that it does not allow any solution, the commission may consider a reorganization procedure. If you have some property (other than what is necessary for your daily life or the practice of your profession), a court decision may decide to sell it.

Attention: the debts concerned by the procedure must not have professional origins.

Renegotiate: instructions for use

We can not advise you to be extremely cautious if you have to redeem your credits through a specialized agency. It is also quite possible that you meet an intermediary in banking (broker)

Play the competition

Do not hesitate to meet several brokers and think about asking the amount of their fees. Build several repayment scenarios over several durations. Refuse any proposal that is to “grow” the amount of the new loan in order to release a capacity of savings. Intermediaries who offer this type of solution wear a double hat and try to sell you a savings transaction, most often under life insurance. Do not stray from your goal of reducing expenses and improving your budget .

You can eventually provide additional capital to build cash up front, but the most important thing is to reduce your overall debt.

Loan consolidation – debt rates, fixed interest rates

Consolidation loans

A consolidation loan is when you pay out one loan some smaller loans. In general, the interest rate will be lower, and a good consolidation loan will provide a fixed rate that will not fluctuate with the market. A consolidation loan can be a signature loan with no collateral or it can be linked to something like a car or your home as a second mortgage. There terms of the loan can be adjusted, which can lower your monthly payment by extending the life of the loan.

Benefits of a fixed interest rate

Benefits of a fixed interest rate

The biggest advantage of a consolidation loan is a fixed rate. This guarantees that your interest rate will not rise despite market conditions, as opposed to most credit cards. Furthermore, you can usually qualify for a lower interest rate than most credit cards. Paying less interest will save you money and mean more of your monthly payment goes to the balance principle rather than to interest.

Finding consolidation loans

There are many different places to find a consolidation loan. The best places to work with are your local banks or credit unions. Start applying there to get the best interest rates and terms for your loan. Companies that advertise on television or in the post often have higher interest rates and fines if you’re late on a payment. They work for people with poor credit history to attract and charge higher rates because of it.

Dangers of consolidation

Although debt consolidation reduces your monthly payments and helps you get a handle on your debt, there are risks involved. If you take a second bond or bind the debt at your home, you are at risk of losing if you miss any payments on your home. For this reason, do not ever pay off credit card debt with equity you cash from your home. Another problem is that many people still use their credit cards after they pay off and find in a similar situation in a few years, only owed them the debt consolidation loan on top of their credit card. If you stop taking a credit card consolidation loan using your credits completely.