Before launching a consolidation or buyout of consumer or real estate credit, it is important to calculate the cost.
For this, it is necessary to take into account the compulsory fees linked to the buy-back and related costs, which are sometimes less visible in the credit conditions. Here is the procedure for calculating the overall cost of the loan repurchase.
Several types of credit surrender fees
The credit redemption fees applied by the bank can be of various types. Overall, a grouping of consumer or real estate loans can be accompanied by bank charges such as early repayment indemnities and administrative costs, without forgetting the cost of insurance.
Fees will also apply if the borrower makes a mortgage secured loan. On the other hand, if a deposit is given as a guarantee, it all depends on the guarantor chosen … More details to follow on all of these bank charges.
The weight of early redemption indemnities (IRA)
To determine the total amount required for redemption or consolidation of credits, the early repayment indemnities provided for in the initial loan contract must be included. The bank buying back the credits will indeed settle the remaining capital due to each creditor.
However, for the latter, this represents a shortfall. This is then offset by the famous early repayment allowances. Unlike mortgages for which IRAs frequently represent 3% of the outstanding capital, consumer loans often have more favorable conditions.
In most cases, the contract provides for an IRA rate of around 0.5% or 1% of the capital remaining due on the day of the transaction. Note: the Consumer Code (art. R 312-2) limits these allowances to 3%.
Included in the credit agreement, the early repayment indemnities are difficult to negotiate. Nevertheless, certain situations are more favorable for obtaining IRA reductions, in particular when the consolidation of consumer credits is carried out within the same financial institution as previously.
Good to know: prepayment allowances are not automatic!
Some credit organizations do not apply prepayment allowances. At Good Finance, a platform specializing in lending and the repurchase of loans between individuals, they do not exist, regardless of the capital borrowed.
Furthermore, no compensation can be claimed by the bank for revolving credit, underwritten the consumer credit before 1 May 2011 (Lagarde law), authorized overdrafts, or when the redemption occurs during a period when the borrowing rate varies.
Who says repurchase of credit says… handling fees
In the vast majority of cases, a repurchase of credit entails the compulsory payment of administrative fees. However, this cost only occurs when the operation is actually carried out.
Concretely, this means that the application fees are not payable during the feasibility study of a credit consolidation or buyout. This simple request for information is free, even from a broker. In case of refusal of the buy-back transaction, no fees are therefore payable. It is the signing of the credit buyback offer that triggers the application fees.
Include insurance costs in the overall calculation
When carrying out a consumer credit buy-back transaction, subscription to death and disability insurance is compulsory in most cases. The same is true when combining credits. These contributions are often overlooked when calculating the cost of the buy-back, but they are indeed additional costs to take into account.
The borrower can cover himself against the risks of disability, death and temporary incapacity for work. Depending on the insurance contracts, depending on the conditions of compensation and the levels of cover, the costs can vary enormously. It is therefore essential to compare these elements carefully, in order to be sure that two competing offers are indeed comparable.
Another element of death and disability insurance to be taken into account in the cost of credit repurchase: the basis for calculating contributions. These can be calculated according to the initial amount of the creditor according to the capital remaining due after each monthly payment. In either case, a seemingly identical contribution rate will not give the same monthly contributions at all!
Tip: to lower the rate and monthly payments, raise the option of the delegation of insurance
The delegation of insurance allows the borrower to take out insurance with an establishment other than that repurchasing the credits.
This approach is possible in the context of buying consumer credit as real estate. The only imperative: take a level of a guarantee equivalent to that imposed by the bank or the credit institution.
Mortgage guarantee and bonding: other costs that should not be overlooked
For a repurchase of mortgage, the bank often requires a guarantee to ensure the repayment of the loan in the event that the borrower comes to default. In addition to life insurance and other investments, which do not involve costs, the borrower can guarantee his loan via:
- the mortgage on his property (this is known as the repurchase of mortgage credit);
- the caution.
A mortgage necessarily involves the intervention of a notary. The costs of a mortgage loan redemption will be integrated into the total amount of the transaction. They include the emoluments, disbursements and fees of the notary, duties and taxes as well as VAT. The amount of these costs depends in particular on the location and the type of property. But the rate that generally applies on the total loan amount is around 3%.
If the borrower chooses the surety as a guarantee, he will not bear any charge if the guarantor is a third party (family member, friend, etc.). On the other hand, if he calls on a guaranteed body, the deal changes! The borrower will have to pay a contribution to the Mutual Guarantee Fund (FMG) and pay a commission. The contribution will be returned to him at the end of the loan. As for the rate applied on the total amount of the loan, it varies between 2 and 3% depending on the organizations.
Negotiating the administrative fees is possible!
It is possible – and even advisable – to negotiate upstream the level of fees. As a general rule, it is necessary to count approximately 1% of the amount of the redemption in administration fees.
But this level is of course negotiable. It all depends on the quality of the borrower’s file, his negotiation skills and the willingness of the credit institution to make a commercial gesture. It is then possible to obtain a significant reduction in administrative costs, in particular in the event of a combination of consumer loans.
When the borrower is able to assert a first-rate business relationship, a current account opening, or even the domiciliation of his household income, it is not uncommon to see the credit institution completely cancel the costs of the folder. In this case, playing the competition – online or in an agency – and comparing several buyout offers plays an essential role.
Make a way for the competition!
Once the borrower has ensured 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, depending on whether the bank bases itself on the initial capital or on the capital remaining due as the monthly payments are repaid, the insurance rate varies on average between 0.2% and 0.7% for a buyout of consumer credit.
In total, the loan repurchase fees borne by the borrower can represent a colossal amount. To review your monthly payments, your borrowing rate and your bank charges drastically down, choose to combine your credits at Good Finance! With the fixed-rate amortizable personal loan – the only consumer credit we distribute – you are guaranteed constant monthly payments throughout the term of the repayment. As a bonus, no hidden costs interfere in our offers, and as mentioned, the prepayment is free, no matter the capital involved. To get an estimate of the total amount of your loan repurchase, do not wait: run a free simulation at the top of the page!
Key points to remember about credit repurchase fees
- Three main types of bank charges come into play: early redemption fees, application fees and the cost of insurance.
- Fees are systematically added to the mortgage, and for the guarantee, only if the borrower has recourse to an organization specialized in the matter.
- Do not hesitate to negotiate the administrative fees, and above all, let the competition play.