Before starting a consolidation or buy-back of consumer credit, it is important to calculate the cost. To do this, we must take into account the mandatory fees related to the buyback and ancillary costs, sometimes less visible in the credit conditions. Here is the procedure for calculating the overall cost of the repurchase of credit.
The weight of early repayment indemnities (IRAs)
To determine the total amount required for the repurchase or consolidation of credit, the prepayment allowances provided for in the original loan agreement must be included. Unlike real estate loans, where IRAs frequently represent 3% of outstanding capital, consumer credit often has more favorable terms.
In most cases, the contract provides for an IRA rate of around 0.5% or 1% of the outstanding capital on the day of the transaction. It should be noted that the Consumer Code (article R 312-2) limits these allowances to 3%.
Included in the credit agreement, early repayment benefits are difficult to negotiate. Nevertheless, certain situations are more favorable for obtaining IRA reductions, especially when the consolidation of consumer credits takes place within the same financial institution as before.
Who says credit redemption says… file fees
In the vast majority of cases, a repurchase of credit involves the mandatory payment of administrative fees. But this cost only intervenes when the operation is actually carried out. In concrete terms, this means that the application fees are not payable during the feasibility study of a consolidation or repurchase of credit. This simple inquiry is free, even from a broker. In the event of a refusal of the redemption transaction, no fee is payable. It is the signature of the offer of redemption of credit which triggers the expenses of file.
Negotiate fees, it’s possible!
It is possible – and even advisable – to negotiate the level of fees upstream. In general, it takes about 1% of the amount of redemption fees. But this level is of course negotiable. It all depends on the quality of the borrower’s file, his ability to negotiate and the willingness of the credit institution to make a commercial gesture. It is then possible to obtain a significant reduction of the expenses of files, in particular in case of regrouping of credits with the consumption.
When the borrower is able to assert a first-rate business relationship, open a bank account or even the domiciliation of household income, it is not uncommon to see the credit institution completely cancel the administrative fees.. In this case, competing – online or in an agency – and comparing several buy-back offers plays a vital role.
Take into account insurance costs in the overall calculation
When carrying out a consumer credit buyback operation, the purchase of a death and disability insurance is mandatory in most cases. The same is true for a credit consolidation. These contributions are often overlooked when calculating the cost of the buyback, but they are indeed additional costs to consider.
The borrower can cover himself against the risks of disability, death and temporary incapacity for work. Depending on the insurance contract, depending on the indemnification conditions and the coverage levels, the costs can vary enormously. It is therefore essential to compare these elements carefully, to be sure that two competing offers are comparable.
Another element of the death and disability insurance to take into account in the cost of the repurchase of credit: the basis for calculating contributions. These can be calculated according to the initial amount of the credit or according to the capital remaining due after each monthly payment. In either case, an apparently identical premium rate will not give the same monthly contributions at all!
Place to the competition!
Once the borrower has made sure that two competing offers have been established on a comparable basis, he can negotiate the rates offered by the companies. In terms of insurance, each situation is unique, but the offers are nonetheless negotiable. In most cases, the offered rates range from 0.2% to 0.7% to provide a buy-back of consumer credit.