In a context of crisis, the risks of difficulties in repaying one or more loans are greater. These kinds of situations can be the result of a number of causes that have increased with the economic crisis. But, once the causes have been identified, there are different solutions to solve the problems of non-payment and limit the problems of over-indebtedness. In this sense, if you have to face many payments at the end of the month, buying back credits can be a great solution.
Credit buy-back: when and why is it a solution?
The repurchase of credits also called (regrouping or restructuring of credits) is a financial operation whose main objective is to reduce the amount that the borrower must pay each month, in order to help him to cover his debt more easily. The ideal is that in no case should you take out loans that upset the balance of your finances, but if you think that you have already exceeded this limit, opting to buy back credits at the best rate is the solution.
The procedure consists of contacting your bank or a financial institution that offers better terms of payment and which manages to settle the credits obtained in other banks. The bank consolidates several credits into a single contract with a single monthly payment, which allows you to reduce spending on different credits to help you with your finances. It should not be forgotten that since the monthly payment is reduced, the duration of the credit will be extended.
If you have several loans in the same bank, you can request a loan consolidation. This solution will allow you to improve your purchasing power on credit with new credit, allowing you to decrease the amount you pay each month. However, buying back credits also means more interest and a longer repayment period.
What are the advantages?
The main advantage of buying credits is that it allows you to combine different loans in one contract and pay lower monthly payments. Another advantage is that a lower interest rate can be obtained by opting for credit consolidation. Reducing the number of payments at the end of each month is also a big advantage.
- Combine several payments into one: allows you to organize and make a simple monthly payment.
- Get lower interest rates: If you have good credit, whether it’s a personal loan or a home loan, most options offer you better interest rates.
- Reduce monthly payments: If the interest on your new loan is lower, your monthly payment may well also be lower. In addition, if you pay on time, you will avoid any type of penalty for defaults.
The usual process is to cancel any loans or credits you have with the bank with a new contract, which will have an amount equal to the sum of all your credits. However, this solution has some drawbacks.
What about the cons?
The main disadvantage of the credit repurchase can be the lengthening of the term of payment, the total cost of the monthly payments added to the interests entails an increase in the final cost of your loan. Added to this is the billing of any commissions by the bank. Despite getting a better interest rate and lower monthly payments, if the repayment period is longer, you will have paid more at the end of the loan term.
In addition, your total debt may increase with the addition of charges associated with the loan or costs of redemption by another bank. On the other hand, if the bank offers you a mortgage-backed loan, you run the risk of losing your home or anything else that you used to secure your loan. In this sense, it is recommended to avoid putting at risk goods whose total value is greater than the amount of your credits.
The repurchase of credit corrects a symptom, but does not solve a more serious financial problem. Before determining if this solution is right for you, consider the causes of your situation and consider other repayment options. You can, for example, negotiate a rescheduling of your monthly payments on additional terms with your bank or else, use the insurance subscribed with your credits.