Credit consolidation does not designate any banking operation, it is an unsuitable term to designate a credit consolidation operation, consisting in redeeming several loans.
Why are we talking about credit consolidation?
Many professionals and other websites use the term credit consolidation to offer credit consolidation offers to tenant households and owners, and yet this term is simply incorrect. It does not designate any banking transaction with regard to the legislation on mortgage and consumer credit. More importantly, the term “consolidation” induces borrowers errors as they can believe in strengthening their credit current contract, which is absolutely not the case.
The grouping of loans is a banking operation proposing to a borrower to redeem his various credits in progress to be able to reduce the amount of the monthly payments. There is therefore no consolidation of credits in the process of repayment, they are simply settled by the establishment which offers this financing. The bank will in fact send a transfer showing the total of the sums due as well as any prepayment charges. This makes it possible to settle the debt and then be able to set up the new credit agreement including all the sums bought back and a possible new amount to finance a project.
What are the advantages of this funding?
A grouping of credits is supposed to allow a borrower to readjust its repayment conditions, that is to say to restore the balance in terms of loan charges in relation to income. When the monthly payments are increasing, that is to say, the maximum debt ratio of 33% is reached, the borrower is no longer able to cope with financial contingencies. It will therefore be exposed to imbalances which can be temporary, even permanent. To allow the borrower to take control of his finances, the grouping of credits will flatten the borrowing costs.
The advantage is therefore at the level of financial balance, this avoids complications and makes it possible to reimburse a monthly payment better suited to the current situation. We generally speak of a drop in monthly payments of more than half. There is also the possibility of financing a new project, this avoids taking out a new loan and especially to include the amount in the financing. Taking this into account is thus better for redefining the repayment terms : longer duration, fixed rate and reduced monthly payment.
Get support to consolidate your budget
We will not talk about credit consolidation but rather consolidation of household finances, with the implementation of an operation to better rebalance the credit charges. It is however important to make a full point on the situation of the borrower, of the household, and to propose a perfectly adapted solution, it is for this reason that it is important to seek an experienced brokerage center. Note that the simulation is free and without obligation.