Debt often arises from the separation or divorce from a life partner.

 

A common reason for debts is separation from your partner and / or divorce. The payment of maintenance and the financial outlay for two apartments often change the financial options considerably and usually not for the better.

In a civil partnership, regardless of whether you only live together or are married, financial obligations are often entered into, for example, by hire purchase. In the partnership, the financial burden of a loan or hire purchase is not a problem. But when it comes to separation, it looks very different. Suddenly you can no longer meet your financial obligations and you are already in the so-called ” debt trap “.

Marriage debts

Marriage debts

If one of the spouses has brought debts into the marriage, the other is not responsible for them and therefore does not have to pay for them. This also applies if one of the spouses takes out a loan alone or makes an installment purchase.

Both spouses are only jointly responsible for the financial liabilities if, for example, they have signed an installment purchase, loan or other contract or are dealing with everyday business.

As long as you are not married, you can separate your finances very well. However, the distribution should be designed in such a way that, for example, not one only pays for fixed costs, such as rent and credits, and the other finances the living (food). In the event of a separation, the partner would suddenly have a big problem with the fixed costs. He must continue to make the loans or installment purchases and also has the cost of living. In the case of divorce from a spouse, however, the situation is similar.

What you should consider if one of the spouses is in debt.

What you should consider if one of the spouses is in debt.

  • You should have separate accounts. This means that the claim holders cannot access the assets (income) of the partner who is not to blame.
  • When the bailiff comes, you should have a written agreement stating what belongs to which partner.
  • New purchases should be made by the partner who is not to blame. Keep the invoice or receipt in the name of the partner who is not to blame.

If you signed a guarantee in marriage, you still guarantee after the divorce. If the ex cannot pay, the creditors will demand the money from the other.

Divorce and waiver

Divorce and waiver

If there were debts in the marriage, it is often agreed during the divorce that the man repays the debt and the woman waives maintenance payments. Sounds nice. But if the ex partner does not pay back the debt, even a judicial agreement with the creditors is of no use. They can and will then assert their claims against the other partner. No matter what was agreed upon in the divorce.

Divorce and alimony

Divorce and alimony

The financial difficulties in the event of a divorce often lie in the maintenance payments for the spouse or children. If the divorce is just around the corner and you want to know which maintenance claims you can face, the law table is a guideline for this.

How To Use Contingent Loans When Buying A Home

It was once a fairly common practice for a home buyer to make an offer that is subject to the ability to obtain a mortgage, which was then known as the credit contingent now.

Times are changing and real estate markets usually dictate the type of recurring and contingent contracts that are acceptable. Today, credit uncertainty is often low.

The reason for the challenges involves the type of contingency loans.

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In California real estate, for example, as in many other places in the state, a home buyer can look at several types of potential loans and include one or more of these contingencies in the purchase offer.

Only home buyers who get finances tend to contract the purchase contract to get a loan. Cash buyers are not looking for a credit case because there is no loan. The contract may be contingent on the buyer receiving:

  • FHA credit, which has its own set of requirements, or
  • a VA loan, guaranteed by the Veterans Administration, or
  • a conventional loan, typically sold in the secondary market, or
  • credit from the credit union of which the borrower is a member, or
  • private financing sometimes called hard money

Depending on the type of loan, the lender may require certain housing or repairs to make the loan. If the sellers and buyers cannot agree on the repairs or terms of the loan, the buyer will not receive the loan and the transaction may fall apart.

Generally, the buyer has a certain period of time in the purchase contract to obtain financing. In some cases, the contract may offer the buyer a choice, to choose from a specified number of days before the credit case will have to be removed or satisfied or to keep the credit case, if all parties agree, established by the time of closing.

Most sellers expect that the buyer will need to get financing

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That’s where the problem begins. Most sellers expect that the buyer will need to get financing. Sellers are usually somewhat reasonable and will allow some time for the buyer to get financing and clear the credit case, but not every seller wants to wait until the closing day to find out if the buyer is truly capable of closing the escrow.

It is not completely fair for the seller to ask the buyer for a 30-day closing period without a firm closing obligation. On the other hand, getting rid of a credit case before closing can make the customer very nervous.

The buyer might wonder what would happen if the lender, for some unforeseen or unusual reason, decided to decline the loan. Should a buyer remove a contingency loan, the buyer could be at the seller’s mercy and the buyer’s risky deposit could be compromised. Few buyers are willing to take the risk of losing a deposit.

Of course, buyers also receive a prepayment letter before bidding. It is a rebuttal letter on which the seller relies on proof of purchasing power and the ability to qualify for credit. But since the file is packed for download, other issues may arise.

Unknown judgments can appear in public records, a buyer might have a blip on a credit report that has gone through the cracks, and the former with a previous short sale may put a nod on qualification, a buyer could lose his job, the buyer can only be employed under the required 2 -year or receive salaries that are not deducted from payroll.

Type of loan contingent is a valuation

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There are things bazillion that can go wrong. Let’s not forget that another type of loan contingent is valuation. The contingency percentage is often separated from the contingency loan. The unpredictability of the appraisal means the house has to appraise at the purchase price.

If the valuation is less than the purchase price, then the buyer can cancel if the buyer has a contract in the purchase contract. If the seller agrees to lower the price to satisfy the estimate, then the buyer is expected to remove the contingency.

But what happens if, at the close of the written delay, it is decided at the 11th hour to order a second valuation and the second opinion on the value turns out to be a low valuation? If the buyer posted a contingency percentage, there is no residual estimate. However, if a contingency loan has not yet been released, the purchase contract may still be contingent on the buyer’s ability to obtain credit.

This is a concern that you need to be aware of with your real estate agent before making an offer to buy a home. Some buyers are comfortable removing contingencies when the lender reassures the customer that the file is ready for financing. However, if the lender has concerns, it may not be a good idea to eliminate the contingency loan.

Potential borrowings also tell the seller.

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The downside is when your offer is among the multiple offers, and other buyers are willing to remove the credit case or shorten the period, and you insist on keeping the loan contingent intact until closing, your offer may not be accepted. The seller may think that you have a problem that can lead to difficulty closing.

In difficult situations such as these, some home buyers ask the lender to approve the file through risk before making an offer to buy the home. Protection clearance eliminates the fear of uncertainty and strengthens supply.

Student loan: how to get it?

Housing, food, tuition, work material and basic computer equipment… Once the baccalaureate freshly obtained and in your pocket, a young student must quickly face an influx of more or less significant expenses, than his parents or a small job will not necessarily be enough to fill.

Certainly less widespread than in the countries of Anglo-Saxon culture, the student loan can represent an indispensable boost to finance a course. It is not only accompanied by specific reimbursement terms, but also by a possible State guarantee which can replace a deposit: an offer to be considered by all future students of modest origin.

What is a student loan?

What is a student loan?

The student loan is a consumer credit that allows a young person to obtain a sum of money intended to finance their tuition fees, their daily life or even potentially any other expense (no proof being required. as to the use of funds). The loan is then subject to a deferred repayment, which means that the capital begins to be repaid only after a certain period, generally corresponding to the date of end of studies.

“Note that some banks, such as Société Générale, allow total and partial release of funds, which can then be paid quarterly, semi-annually or annually…”

The amount of the loan depends on multiple factors, including of course the cost of training and, above all, the expected remuneration in the job market. This is the reason why students who integrate certain training (commerce, engineering, institutes of political studies…) will have the capacity to borrow, if they wish, higher amounts. The loan amount will depend on the bank chosen.

As a consumer credit, the student loan is subject to the same regulations, in particular with regard to the preliminary information to be submitted to the borrower, the establishment of the contract and the right (terms) of withdrawal. Although this is not an obligation, it will most often be accompanied by death and disability insurance. You are free to choose this borrower insurance, nothing forces you to choose that of the bank.

What are the types of student loans?

What are the types of student loans?

Two types of student loans coexist: the first, classic, requires the appointment of a surety (most often the parents) in the event of default by the borrower. The second is a specific student loan benefiting from a State guarantee.

State guaranteed student loan

The State guarantee applies to any loan of a maximum amount of $ 15,000. Through the Public Investment Bank (Bpifrance) and agreements signed with lending banks, the State will take charge, in the event of your default, of your monthly payments up to 70%. This guarantee is accompanied by a period of validity of ten years from the date of the first payment of funds by the student.

Partner banks

To offer their students a student loan without security or means test and backed by the State guarantee, the banks concerned have signed an agreement with the public authorities and update it every year. To date, 5 banks offer public guarantees: Crédit Mutuel, Société Générale, Banques Populaires, CIC and Caisses d’Épargne.
Be aware that the latter have the possibility of refusing you the student loan if they consider that you will not be able to repay your credit even though you have the guarantee of the state.

Important: the envelope allocated to the student loan has been fully used for the year 2018. To date, its marketing is no longer current. The system should be renewed in 2019. To monitor the progress of the allocations, you should consult Bpifrance.

Student loan with deposit

The most classic way to get a student loan is to guarantee it via a joint and several guarantee. This type of loan is thus easier to obtain and suffers from fewer constraints. Indeed, all banks offer this financing to their customers. The amount of the loan varies according to the establishments. As a general rule, it ranges, at most, between $ 80,000 and $ 120,000.

In most cases, it is the parents who give their consent, but the surety can also be given by another third party. Please note: such a guarantee commits the surety to pay in place of the credit holder in the event of default when repaying the loan.

Student loan: eligibility conditions

Student loan: eligibility conditions

To qualify for a student loan, you must first prove that you are a student. This is the reason why the loan application file must include a certificate of education demonstrating that the borrower is preparing a French higher education diploma. The young person must be over 18 and under 30 (or 28 in the case of a student loan guaranteed by the State) at the time of taking out the loan, and have French nationality, be a citizen from a country in the European Economic Area (EEA) or prove that he has lived in France for at least 5 years.

Contrary to popular belief, the state guaranteed student loan is not means tested. All students can apply for it, regardless of the income of their family home. The contract cannot include a parental or other guarantee, precisely as regards the reason for being of this device.

How to simulate a student loan?

How to simulate a student loan?

To obtain an estimate of the monthly payment of a student loan, it is possible to carry out simulations directly on the internet. Most traditional bank sites offer a simulator and at the same time detail the specific grant conditions (for example, the maximum amount of the loan).

However, this loan being quite particular, it is necessary to refine its request by making an appointment with a bank advisor. The school chosen, the age, the repayment period or the student’s needs are important variables in determining the exact amount and monthly payment of a student loan.

How to get the best student loan?

How to get the best student loan?

The amounts and terms of the credits vary according to the banking establishments: repayment period, amount granted, guarantees requested, interest rate offered, pricing of any credit insurance, etc.

To obtain the best student loan, obtaining at least 3 different proposals is an essential step. By comparing all of the above elements as well as the credit TEG, the borrower and his parents will be able to select the best offer. Let the competition play!

Compare the interest rate, duration and repayment terms

Banks offering student loans freely negotiate the credit TEG with the borrower, depending on their profile and the specific market situation: no constraints therefore exist on this subject. The total duration of the loan, on the other hand, is just as variable and can range from two years minimum, for the shortest, to nine, or even ten years, especially for long studies or the highest amounts to be repaid. The loan can be repaid on a deferred basis. The repayment terms will depend on the option chosen for the deductible, partial or total:

  • With partial exemption, the student will have to pay monthly, during his studies, the amount of interest corresponding to the capital borrowed, possibly accompanied by the premium of the borrower insurance. The capital is reimbursed only at the end of the studies, according to a schedule fixed in advance.
  • Completely free, even the payment of interest is postponed until the end of studies. This means that the student, during his course, will only have to pay the insurance premium. Note that the deferral of interest generates additional interest, and that the cost of credit is therefore ultimately higher than in the first scenario.

Note also that the contract must include the terms of early repayment of the loan. In the case of a consumer credit, penalties will – if necessary – only be paid if the amount repaid in advance exceeds $ 10,000 over twelve rolling months (0.5 or 1% of the capital borrowed, depending on the remaining term of the ready).

How to choose student loan insurance?

How to choose student loan insurance?

By taking out a student loan, the borrower is free to take out, or not, borrower insurance. If such cover is not compulsory, it is still recommended and can cover a certain number of risks. In general, two formulas are proposed:

  • DPTIA insurance: Death and Total and Irreversible Loss of Autonomy;
  • DPTIA insurance supplemented by a guarantee in the event of disability.

Like credit itself, bringing competition into play can be beneficial. Indeed, it is possible to take out a loan in a bank while choosing a borrower insurance with another insurer in order to obtain better guarantees and / or a better price.

Renegotiating your student loan: is it possible?

Renegotiating your student loan: is it possible?

Renegotiating a debt involves asking the lender to review the conditions of lower interest rates. In the case of consumer credit, a student loan cannot be renegotiated, at least not in the strict sense of the term.

However, it is possible to have your student loan bought back by another bank. However, it will be necessary to wait until the loan is being amortized, that is to say, upon entering working life. Redeeming a student loan can lead to significant savings. Two possibilities then exist:

  • decrease the amount of the monthly payment without modifying the repayment period. This makes it possible to lighten the monthly budget allocated to repaying the loan;
  • reduce the total duration of credit repayment without modifying the amount of the monthly repayment. The financial gain is then greater.

 

Credit for students without credit check

Student income is usually rather modest. Despite the public funds, the money that is available monthly is often hardly enough. In addition, there are now tuition fees that make life even more expensive for students. However, if students work alongside their studies, this is often at the expense of the study time. The study time is drawn out unnecessarily and the times in which income can finally be achieved are moving further into the future. A loan for students without credit check can be found here be the solution.

What distinguishes the loan for students without credit check?

What distinguishes the loan for students without credit check?

The special feature is that the loan for students without credit check is a special loan that is peppered with special conditions. Such a loan for students without credit check can only be obtained by enrolled students with ID. Not all credit institutions offer this loan to students. Anyone who decides on such a loan that is tailored precisely to the needs of students should either ask their own house bank, which also has the current account, for such a loan, or research on the Internet which banks have this loan for students without offer credit check. Particularly favorable conditions are the advantages that this loan brings for students.

How do I get the loan for students without credit check?

How do I get the loan for students without credit check?

As a rule, the loan for students without credit check entry in the interest calculation is particularly cheap. In addition, there is no need to provide collateral for the loan for students without credit check. Regular income is enough to get such a loan. If the loan amount is to be in the area of ​​a small loan – i.e. around 3,000 dollars – then usually no proof of income is required to receive the loan.

Of course, anyone who can provide collateral in the form of savings or life insurance will also receive a higher loan amount for the loan for students without credit check registration. An alternative to getting a higher student loan amount can be to provide a guarantor. Parents with a regular fixed income can guarantee a higher loan amount here.

What conditions can I expect for the loan for students without credit check?

What conditions can I expect for the loan for students without credit check?

The peculiarities of the loan for students without credit check entry are often already in the low interest rates. The banks regard the current students as the target group for investments and loans for tomorrow – therefore offer good conditions for student loans for customer loyalty. These can also mean that the repayment of the loan only begins at the end of the course. Various financial institutions even increase this goodwill by expecting the repayment of the loan and the payment of the interest only several months after the end of their studies or even when they start working.

So the student can dispose of the loan amount and the income from it is not reduced by the repayment of the loan amount. Many credit institutions are also very flexible in the payment of the loan amount. So the student can choose the payment method at different banks. The loan amount can either be drawn in one sum or as a monthly payment. The last option in particular offers a very good overview of finances and optimal financial support during your studies.

Loan terms 125%? What is it and how do you qualify for this total loan?

 

The conventional mortgage loan limits the financing of real estate projects to the tune of 60 to 80%. The rest must be provided by a personal contribution from the borrower. However, there is a home loan formula that can cover up to 125% of the total loan. What is it and how do you qualify for this total loan?

125% loan, a loan without contribution

125% loan, a loan without contribution

As mentioned earlier, the 125% loan is a loan that relieves the borrower of the provision of personal contribution. The personal contribution is generally intended to cover the costs incurred by the credit and the real estate financing. It covers in particular the costs of the file but also the emoluments of the notary during the constitution of the mortgage. The total loan can also cover possible renovations. It should be known that each credit institution fixes the part covered itself. In fact, despite the 125% credit designation, the loan can be limited to 120 or even 100%. This type of total loan is mainly aimed at young first-time buyers who do not yet have a sufficient reserve of money.

The conditions required to benefit from a total loan

The conditions required to benefit from a total loan

Total credit offers are not intended for the general public. It mainly targets borrowers with the best financial situation. The banks and credit institutions which offer this type of loan require in particular a stable professional situation with prospects for development and a high level of salary. To be eligible for the total loan, the borrower must have had a permanent employment contract for at least twelve months.

The borrower must also have a reasonable debt ratio. Remember that the tolerable debt threshold is legally set at 33% of income. It is therefore necessary to clear your commitments before applying for a loan 125. The number and size of outstanding loans should not weigh heavily on the borrower’s budget.

Each time an organization receives a loan request, it has the obligation to open an investigation. He must notably check the borrower’s financial history, a previous banking ban considerably reducing the chances of obtaining credit.

The interest rate on a total loan

The interest rate on a total loan

The total loan is a special loan that involves more risk for the lender. As a result, its interest rate is significantly higher than the conventional mortgage rate. Count an increased rate around 0.5% compared to a normal mortgage. This difference may seem little on paper but with a credit spanning 25 or 30 years, it is important. It is therefore imperative to compare well in order to choose the most suitable offer. This rate will also change depending on the duration of the loan and the guarantees offered by the borrower. It is up to the borrower to negotiate his case well. The intervention of a broker is not useless if you wish to obtain the contract at the best conditions.

A loan to build a house.

The bank is generally known for receiving funds through deposits made by their customers. On the other hand, it also makes funds available to these same customers, through bank loans. Indeed, the majority of people, individually or as a legal person, (SCI or others) have recourse to a bank loan to finance their projects. It is noticed that most of the house construction projects are financed by a mortgage.

The objective? Persuade the bank to grant this mortgage.

A task that remains easy at first glance, but subject to fulfilling all the conditions to be satisfied to obtain it.

In other words, this is not impossible and we will see how to achieve this goal.

Real estate credit and the banking system

Real estate credit and the banking system

Today, the bank is adopting a new strategy with its customers. Indeed, the latter tries to seduce the client through mortgage loans. It is clear that if the borrower’s file respects the basic rules of financing, it will most likely succeed. Even better, he may have the opportunity to get good credit.

Good credit, how to define it? It is a loan with a high interest rate, a monthly repayment adapted to the borrower’s situation, effective and economical insurance, and the least expensive loan guarantees. Despite its desire to finance construction projects, the bank still wants to limit the risk of default. Thus, the borrower is advised to show himself on his best economic profile, by proving that he can keep his commitments throughout the duration of the credit.

The bank may agree to partially finance the project, or all of it. To obtain this loan, the presentation of a solid file is essential. The bank is also looking into the ability to repay the credit. It obviously takes into account the professional situation of the borrower, and also the good maintenance of the bank account.

Don’t be surprised if you learn that the bank is interested in your project. It ensures the reliability of it, what could be more normal!

For information, the bank hardly considers self-construction projects.

For the interest of the future buyer, the consultation of several loan organizations is recommended. It is always advantageous to be able to choose several competitive offers. In addition, it is important not to hesitate to learn more and behave like a good informed borrower.

The credit broker: a good project partner

The credit broker: a good project partner

Getting started with the bank to find your credit is not easy for most investors. Fortunately, you can go to a credit broker.

Who is a credit broker? It is a professional responsible for finding the most advantageous loans on behalf of his client whether he is a professional or an individual. Because of his experience, the credit broker has mastery of his trade.

It is in fact a mediator between the bank and the client.

His expertise led him to be informed of the different loan offers offered by banks and borrowing techniques. He can thus avoid his client wasting his time. To judge its effectiveness, we must refer to its ability to validate a file for obtaining the loan with the best possible conditions. The intervention of a credit broker is requested because he can speak on behalf of the client.

At Immofinances.net, you will surely find the best credit broker who could support you in the success of your project. Not only can the latter help you, but you will have the assurance that the file will be validated and this, as soon as possible to make your home construction project a reality.

Loan despite limited employment contract.

It is becoming increasingly common that an employment contract is not concluded for an indefinite period, but is only limited to one or two years. This has less to do with the qualifications of the worker, but more with the general economic situation.

In academic circles in particular, it is quite common to only conclude an employment contract for a limited time and then to extend it accordingly. This has some disadvantages that should not be underestimated for those affected. This means that they can only rarely plan for the future and sometimes have considerable difficulties in getting a loan despite a fixed-term contract. This applies even if all other requirements are met and the Credit Bureau information is completely in order.

Requirements for a loan despite a temporary employment contract

Requirements for a loan despite a temporary employment contract

Under certain conditions, it is quite possible to get a loan with a fixed-term contract. However, in most cases the banks will insist that the term of the loan does not exceed the end of the fixed-term contract. Otherwise, additional collateral would have to be available, such as a debt-free property or a loanable life insurance.

There is usually a good chance of getting a loan despite a fixed-term employment contract even if the applicant could find a guarantor or a co-applicant with a high income. It would therefore be an advantage for spouses or life partners if they submit the loan application together. However, this only increases the borrower’s creditworthiness if the co-applicant has a permanent and permanent employment relationship. In addition, his Credit Bureau information must be in order and must not have any negative features.

Approval, payment and repayment

Approval, payment and repayment

Similar to any other loan, a loan is paid out in one amount despite a fixed-term contract of employment and then has to be repaid in regular monthly installments. Both the amount of the installments and the length of the term are determined in advance and cannot be changed at a later point in time. An exception would only exist if the borrower was also given the option of making special repayments or making early repayments. If the terms of the contract provide this, use should be made of it. So there is always the chance to repay the loan early.

Alternatives

Alternatives

A loan despite a fixed-term employment contract could also be taken out among friends or relatives. It can be repaid very flexibly and, if necessary, repaid in one amount. In addition, there would be the possibility to obtain a personal loan via one of the numerous credit brokerage platforms on the Internet. However, these platforms do not act as lenders themselves, but only bring together private lenders and private borrowers.

The search for a foreign loan, however, could be difficult. Although foreign lenders often do not provide Credit Bureau information, in return they place even greater value on a permanent and permanent employment relationship. In addition, the income must be so high that it could also be seized if the arrears persist.

Installment loan with a term of 120 months.

Bank loans are often given an installment loan with a term of 120 months. Because 10 years is actually not too long a time to pay off a high loan amount. For example, if you decide to finance a property and you have a fairly high share of equity, the term is usually 120 to 240 months, i.e. 10 to 20 years. So this is definitely a usual term, which arises when the loan amount is very high.

Long term with a high loan amount

Long term with a high loan amount

However, this form of financing with a long term is only recommended if there is really a high loan amount. Because the lower the loan and the more disproportionate the monthly installments, which lead to a very long term, the higher the interest rates that can be expected.

The installment loan with a term of 120 months is actually only suitable if the purchase is enormous and some equity is already available. One should calculate with the purchase of a property with at least 15 to 20 percent equity, so that one can expect favorable interest rates from the bank. The more equity there is, the more advantageous the bank’s offer will be. And of course, it is highly recommended to keep the runtime as short as possible.

Long terms have to be well thought out

Long terms have to be well thought out

An installment loan with a term of 120 months is therefore not suitable if it is a small loan. This would mean that the monthly installments are also very low and in principle this procedure only leads to the fact that one pays a significantly higher proportion of interest than the proportion that makes up the repayment. However, an installment loan with a term of 120 months or with a term of 10 years can also be very small if the amount of the loan is correspondingly high. Proportionality must always be appropriate here. A 10-year term does not always have to belong. With a loan of 500,000 USD or more, repayment would be very quick within 120 months.

An installment loan with a term of 120 months is not uncommon. You should be aware that a lot of things can change in your personal life and the rates should be calculated afterward. It is not uncommon for a couple to suddenly become a small family and, of course, suddenly less money is available for repayment. That is precisely why it is important to be as flexible as possible when the term is so long. Personal changes always cause a change in the financial situation.

Credit debt rescheduling guide – refinance loans

The debt restructuring aims to fundamentally reorganize loan liabilities. To this end, one or more borrowers’ loans are replaced by taking out a new and more advantageous loan.

If, for example, a borrower has made regular repayments on a car loan, an installment loan or on an overdraft facility with his bank, it may make sense to replace these three individual loans and merge them into a single loan. This restructuring of existing loan liabilities is known as debt restructuring. This is particularly interesting in times of low interest rates, since the debtor can reschedule more expensive loans at a particularly low interest rate and save a lot of credit costs compared to the original debt.

Debt restructuring advice

New loan or contract change as debt restructuring?

New loan or contract change as debt restructuring?

In principle, borrowers can also take out the new loan from a bank other than the previous one, if necessary. If certain notice periods are observed, the contractor is not contractually obliged to apply for the new loan from the credit institution (s) that have been granted the existing old loans.

If the borrower opts for a new lender, a completely new loan contract is concluded for the new loan to be taken out.

If, on the other hand, the borrower agrees to reschedule the debt with the bank that also granted the old loan, it is generally not necessary to conclude a new contract. Contractual debtors and contractual creditors remain identical, the existing credit contract will only be continued on the basis of changed conditions.

Under such conditions, therefore, only a change in the contract of the existing credit relationship takes place.

What are the benefits of debt restructuring?

What are the benefits of debt restructuring?

Reduction of borrowing costs and interest

The combination of several loan debts into one loan can initially lead to a noticeable reduction in the interest cost burden. If a new loan is taken out at more favorable interest rates, the savings effect for borrowers will be greater, the more redeemable old loans with a relatively higher interest rate are to be repaid.

This applies in particular to old loans without an interest adjustment clause, which were taken out by the borrower in periods of high interest rates. Such loans with fixed interest rates bind the borrower to the interest agreement even in the case of generally declining loan interest rates, so that the borrower can usually only get rid of this by early loan repayment. The debt rescheduling of such old loans can bring about a noticeable financial relief.

On the other hand, if the old loan is based on a variable interest rate, the situation is more favorable for borrowers. In this case, the loan interest rate follows the market development with the consequence that the variable contract interest rate participates in interest rate cuts on the capital market. As a rule, there is therefore no need for a restructuring of the existing loan liability at interest rates with the agreed sliding rate clauses.

Transparency and control

In addition to tangible cost advantages, debt restructuring offers borrowers the opportunity to manage and monitor their debt more sustainably. If different loan liabilities are paid off at the same time, borrowers sometimes run the risk of losing track of their debt management. If they are then in arrears with the payment of credit installments, the entire remaining credit debt may fall due. Such typical constellations often form the prelude to over-indebtedness of the borrower, from which he can no longer get rid without professional help.

Debt restructuring can help avoid such situations by relieving borrowers from having to meet a variety of payment dates. Instead, after rescheduling, he only has to make a single repayment on time.

The debt rescheduling also tightens the contractual relationships. Borrowers are faced with different types of contractual terms in the case of several loans. The conclusion of only one credit contract ensures legal certainty and an overview.

The borrower knows what he is up to and can adapt to the applicable contractual terms. In addition to bureaucratic relief, rescheduling can also help the borrower to be more predictable and, as a result, more reliable in planning.

New economic freedom

Successful debt restructuring can also open up the possibility for the borrower to use the newly gained financial freedom of movement for previously deferred arrangements. Depending on the amount of the savings potential realized with the debt rescheduling, special repayments on the new loan may also be considered, which lead to a faster extinction of the loan debt.

What are the disadvantages of debt restructuring?

What are the disadvantages of debt restructuring?

Processing and brokerage costs for new loans

For the new loan, processing fees and, if applicable, agency costs are incurred, which the borrower has to bear. These cost items should always be taken into account when the economics of a debt rescheduling are overestimated, because they reduce the surplus that would result from the expected interest savings.

Under certain conditions, debt rescheduling can be unprofitable and should be avoided. This is particularly the case if the term of the remaining loan (s) is only marginal. The borrower should then recalculate whether the interest income from the new loan actually exceeds the costs associated with taking out the loan. Conversely, rescheduling can be all the more rewarding the larger the amount of old credit and the longer the remaining term.

Processing costs for old loans

If the debt is rescheduled, the borrower suffers an additional financial loss due to the full retention of the processing fees paid for the old loan. In the event of early termination of the old loan, the borrower will not be reimbursed the processing fees pro rata (i.e. depending on the remaining credit term). This economic loss must also be taken into account when calculating the overall debt rescheduling.

Processing fee and prepayment penalty

The economic benefits of debt restructuring can also be questioned by paying early repayment penalties or a processing fee if the old loan is canceled early.

The prepayment penalty is charged by some banks if the borrower cancels the loan without adhering to the specified notice periods. The compensation claimed is then the loss of interest suffered by the bank as a result of the early termination. In their contractual terms, other banks waive early repayment penalties in the event of early loan termination. Instead, they charge the borrower a separate processing fee for processing the contract.

Residual debt insurance

If the old loan to be rescheduled is insured against residual debt, the borrower will be reimbursed, in the event of termination, pro rata payments made for the residual debt insurance for the unused remaining credit term. However, as with the cost of taking out a loan, it is also the case here that the insurer withholds the processing fees incurred and does not refund them.

On the other hand, it is not possible to take an existing residual debt insurance to secure the new loan. The residual debt insurances sold in cooperation with insurance companies bring banks considerable commission payments and therefore represent a profitable loan coupling product for them. The contractual terms of banks and insurers therefore rule out a transfer of the residual debt insurance as a rule. Borrowers seeking debt restructuring are therefore obliged to take out additional residual debt insurance for the new loan if the bank makes the loan dependent on it. In these cases, additional financial burdens threaten, because the residual debt insurance always leads to an increase in the cost of the loan.

Which loans can be rescheduled?

Which loans can be rescheduled?

The possibility of debt restructuring is fundamentally possible for all forms of credit. In particular, debt restructuring is therefore possible

  • Installment loan
  • Overdraft facility
  • Building loan

Debt installment loan

Liabilities from one or more installment loan contracts can be converted into a new loan so that the borrower only pays off on a loan debt. If, for example, payments are made for each mail order, car and additional purchase loan, the new loan can be used to repay all of the borrower’s loan liabilities.

The debt is rescheduled by early repayment of the existing old loans. As the explanations for early loan repayment on this website show, it is important to distinguish between loan contracts with a fixed interest rate and a variable interest rate (sliding interest rate).

The notice periods for loan contracts with fixed interest agreements are generally longer than for sliding rates. If the borrower does not meet the notice periods, it should be borne in mind that the bank may also charge a prepayment penalty or a special contract processing fee.

Debt overdraft facility

The overdraft facility (overdraft facility) can also be rescheduled. In such cases, the extraordinarily high interest burden due to the constant use of overdrafts makes rescheduling by taking out a cheaper interest-bearing loan worthwhile.

For the rest, borrowers can cancel the overdraft at any time, because it is not a term-based loan contract. Rather, the bank provides the borrower with a certain credit line without requiring collateral or taking out residual debt insurance. The bank pays interest accordingly if the borrower uses the overdraft facility. It is not uncommon for an overdraft to add up to 12% pa or more in interest.

  • More on this under: Overdraft facility versus installment loan

Debt construction finance

The rescheduling of construction loans can also make sense if the interest rate falls and a new loan can be concluded on better terms. However, a building loan is closed regularly with long agreed contract terms and a corresponding fixed interest period.

In the terms of the contract, early repayment and rescheduling of the construction loan before the expiry of the fixed interest period is therefore always excluded. In exceptional cases, however, early loan termination is also possible if the borrower has a legitimate interest in otherwise realizing the mortgage-encumbered property.

In such a case, however, a not inconsiderable prepayment penalty is payable, the amount of which depends on the remaining term, the agreed contract interest rate and the current interest rate.

  • More on this under: mortgage rescheduling

When does debt restructuring make sense?

When does debt restructuring make sense?

Calculate interest savings and calculate expenses

Debt restructuring through borrowing offers clear advantages for borrowers who want to bundle their liabilities and pay them off at lower interest rates. However, whether the debt restructuring is actually beneficial and the intended savings effects depends on several factors.

In principle, debt restructuring can only be promising if the general level of lending rates has dropped noticeably. The effective interest rate on the new loan must be significantly lower than the effective interest rate on the old loan to be rescheduled, because all the costs incurred for loan repayment and new borrowing must be counted against the possible interest relief.

The cost items to be taken into account also include residual debt insurance, insofar as it is a condition for taking up new funds. The borrower should only decide to do so if this total cost calculation can be expected to result in clear economic benefits from debt restructuring. However, debt restructuring can then be a suitable means of optimizing debt.

Debt overdraft facility

A debt rescheduling with an existing overdraft facility can be particularly useful and advisable, which is also used regularly. The overdraft facility was initially developed for bridging financial bottlenecks quickly, but in practice has long since taken on the function of a regular loan. The result is an interest charge that is constantly in the double-digit range.

Borrowers who keep their current account in negative territory should therefore always consider the possibility of rescheduling. With a low-interest installment loan, you can initially balance the overdrawn account. If financing needs arise again in the period that follows, borrowers can access the consumer installment loan and thus avoid the sometimes adventurously high overdraft interest.

Short remaining credit terms

A debt rescheduling can be more loss-making if the contractual residual credit term ends in the foreseeable future. Even if the level of lending interest has dropped sustainably, the interest income that can be achieved through debt rescheduling can usually no longer outweigh the cost disadvantages associated with borrowing in the short time that remains.

What is the best way for the borrower to do this?

What is the best way for the borrower to do this?

In conclusion, it can be stated that the decision for or against a debt rescheduling always depends on the special economic conditions of the credit situation. Therefore, only a clear assessment of this situation can answer the question of whether there is actually a need for debt restructuring in individual cases. The best way to develop a reliable assessment of the credit situation as a basis for decision-making is in four individual steps.

1. Debt overview plan

1. Debt overview plan

At the beginning there should be a complete review and recording of all loan liabilities. In the case of several loans, the compilation should show the following aspects individually

  • Loan type and loan amount
  • Amount of the monthly installment
  • respective loan interest rate (APR)
  • Remaining credit term
  • Cancelability
  • if applicable, prepayment penalty or contract processing fee
  • Residual debt insurance and possible proportional reimbursement value

In the case of several loans in particular, the borrower has to undergo time-consuming work to determine all the circumstances relevant to the decision. Ultimately, however, he can only make the right decision if he first gains clarity and an overview of his initial economic situation.

2. Comparison with alternative offers

2. Comparison with alternative offers

Based on this data, the borrower can compare the terms of his existing loans with other market offers. Particular attention should be paid to this

  • the APR
  • the processing and agency costs
  • the need for residual debt insurance

These points should be recorded separately. The borrower can now first compare the loan interest data (effective annual interest rate) of the competing products with the corresponding interest rates of their existing loans. From the outset, those offers can be disregarded if their effective annual interest rate is not significantly lower than that of his current loan liabilities.

3. Profitability analysis

3. Profitability analysis

The next step is to clarify whether the lower interest rate actually bears the costs of rescheduling. The borrower can access the data and figures he has collected and now calculates the interest rate advantage of possible loan alternatives against all the costs of taking out a new loan and repaying the old loan.

In particular, the costs of a residual debt insurance for the new loan must be taken into account if it is required to take out a loan. If, based on this calculation, it is clear that the interest rate advantage of the new loan will be offset by the expected total cost burden, the borrower should refrain from rescheduling.

4. Check the new lending requirements

4. Check the new lending requirements

On the other hand, if the performance audit reveals that rescheduling brings clear cost advantages, it is not advisable to rush to replace the old loans as long as it is not certain that the borrower also meets the personal credit requirements. Therefore, in a final step, the exact conditions under which the debt rescheduling loan can be taken out should be clarified.

Of particular importance is the creditworthiness of the borrower, which is routinely queried with every loan application. For borrowers, the basic rule is that experience shows that their creditworthiness can suffer if several loans are repaid. The borrower should therefore clarify precisely this point before a planned debt restructuring.

Use the low interest rate phase and save interest costs through cheap debt restructuring.

Explanation of how installment credit works

 

Also called depreciable credit, installment credit is easily accessible credit. It is mainly used to pay unforeseen expenses so as not to be forced to use its reserve of money. We will give you the details regarding the operation and benefits of this type of credit.

Definition of installment loan

Definition of installment loan

This is a consumer loan without proof which is generally requested to finance a specific project: home renovation, car purchase, travel payment, etc. Its side without proof makes it particularly attractive for consumers who do not need to provide an invoice or quote for their project in the credit application.

How the installment loan works

How the installment loan works

Installment credit is a credit agreement in which a financing institution grants capital to a borrower without knowing how he intends to spend his money. It is a credit to be reimbursed over a fixed period with fixed payment terms (generally monthly). Most amortizable loan contracts mention (s):

  • monthly payments
  • credit repayment period (this depends on the capital borrowed but it is 12 months minimum)
  • total cost of credit
  • interest rate…

As with any other credit, installment credit is obtained by demonstrating to the lending institution its repayment capacity. To verify this, the latter performs an in-depth analysis of the applicant’s resources and expenses. Note that installment credit is regulated in book VII of the Code of economic law which deals with consumer credit.

Benefits of Depreciable Credit

Benefits of Depreciable Credit

The main advantage of this type of credit is the free use of funds. The fixed nature of the repayment period, the interest rate and the amounts of monthly payments to be paid is also an asset of the depreciable credit. Indeed, with these fixed payment conditions, the borrower knows in advance the cost of his credit and the amount of repayments to be made each month. On the other hand, the rather long repayment duration of this type of loan induces a reduced amount of monthly payments which the borrower can settle without much difficulty.

On the other hand, the beneficiary of the installment loan must take into account the fact that it is impossible for him to change the terms of repayment of his credit, once the contract has been signed.

Obtaining an installment loan

Obtaining an installment loan

To qualify for a low rate installment loan, you must start by comparing the offers available on the market. When comparing, pay attention to the repayment tenure, the amount of the monthly payments, the interest rate, the ancillary costs and the APR. At the same time, do a credit simulation to get an idea of ​​the total cost of your loan.