If you have more than one loan outstanding, you can combine them to decrease your monthly payments. This is called buying back credits. You close first, get their capital balances, and take out a new loan.
The resulting credit is therefore at a low rate but its repayment is spread over a longer period. It is possible to ensure that this reimbursement is adequate with your income. Credit consolidation – under its other name – is a solution to over-indebtedness of individuals. Those who use them see their monthly charges drop. No more confusion due to the management of multiple deadlines!
Beneficiaries of a loan buy-back
Each lender has their specific criteria but in any case, the ability to repay is the main criterion. You must also take into account the acceptance policy of the financial entity. However, it should be noted that people registered as “negative” at the National Bank of Belgium are not entitled to buy back credits.
Functioning of a grouping of credits
The different names of this financial solution, namely the repurchase of loans, restructuring or consolidation, perfectly sum up how it works. We combine the credits and buy them back in order to consolidate or restructure our monthly budget.
Example of credit consolidation
Before the grouping of credits, a customer contracts a car loan whose monthly payment is 345 $, a personal monthly loan 275 $ and a work loan whose amount to pay per month is 110 $. The total monthly payment is $ 730. Each type of loan generates a capital balance of $ 8,475, $ 4,850 and $ 2,450 respectively, resulting in a total of $ 15,775.
After the redemption of credits, the new credit of $ 15,775 can be repaid 60 times a month by $ 331.77 assuming that the simulation was based on an overall effective annual rate of 9.99%. By making the difference between the total monthly payments of the initial credits and that of the repurchased credit, one obtains a monthly surplus of 398,23 $, which represents a consequent gain.
Various financial organizations and banks offer credit groupings. Most have an online credit simulator. You just need to choose the amount to borrow and the duration of the loan, and then the monthly payment, the annual effective annual rate as well as the total amount to be reimbursed are displayed.