Depending on your situation, if the repayment of your monthly installments of credit becomes too high, you can opt for the solution of the debt consolidation, which has many advantages, in particular, that to lower the number of your monthly repayments.
When borrowing a mortgage, the vast majority of banks or financial institutions do not allow a debt ratio higher than 33%.
And for good reason, it is the limit from which we consider that you can live normally, without depriving yourself. But some life events may cause you to take out more consumer credit, and exceed your debt limit.
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Debt consolidation allows you to collect all your credits in one loan. Generally, you also increase the number of monthly payments, thus allowing you to lower them.
Take the example of a couple who earn 4000 USD per month, and had to buy 3 consumer credits to do work, buy a car and finance a trip.
- Loan 1: 15,000 USD repayable over 80 months (monthly payments of 200 USD)
- Loan 2: 5000 USD repayable over 36 months (monthly payments of 145 USD)
- Loan 3: 2500 USD repayable over 24 months (monthly payments of 115 USD)
They already repay a mortgage of 310,000 USD contracted for 20 years, in monthly payments of 1300 USD.
They have about 270,000 USD of capital left over. In total, the amount of their monthly payments with consumer loans amounts to 1760 USD, a debt ratio of 44%.
This couple can negotiate with a financial institution for the repurchase of the mortgage. The total sum of the loans will be regrouped, the duration will be recalculated, as well as the interest rates. In this case, the couple can find themselves in this situation:
- Total loan: $ 292,500
- Loan period: 264 months (22 years)
- Amount of monthly payments: 1,110 USD
With the purchase of credits, this couple saves 650 USD per month of monthly payments and only extends the mortgage for two years. You just have to accept the small inconveniences that come with: early repayment fees, warranty fees or any fees. But the amount of these fees can also be included in the total loan amount.
The redemption of credits is also valid if you have only contracted consumer credit or if your debts are loans or receivables. In this case, it may be interesting to opt for purchase of credits by decreasing the duration of borrowing rather than monthly payments.
The decline in the number of monthly repayments is not so blatant, but the total cost of credit is greatly diminished.
How to get the best buyback rate?
It is not because you want to lower the monthly payments that you have to accept the first offer proposed by a buy-back organization.
Some may offer you very high rates based on the fact that you want to reduce the number of your repayments because you are in financial difficulty. On the one hand, this is not always the case, on the other hand, it is not a reason.
The spreads can be thousands of USD, which you will have to pay more or less on the total amount of the loan.
Credit 1: 4.9% rate with monthly payments of 273 USD
Total cost of credit: EUR 4830
Credit 2: 6.9% rate with monthly payments of 295 USD
Total cost of credit: 6910 USD
For the same repayment term, and the same amount borrowed, you can end up paying over 2000 USD more over 8 years of borrowing.
To avoid getting caught, the best solution is to use a credit redemption comparator. Depending on your personal situation, your income, and the number of credits you have contracted, you will be able to find out what is the best deal that might be right for you.
Applying for the redemption of credits requires, as with any loan, sufficient resources to pay the repayments.
As a general rule, any credit institution will ask you to provide the following:
- an ID ;
- a proof of address dated less than 3 months;
- the last 3 statements of account;
- the last tax notice;
- proof of income;
- the number of credits in progress, with the capital remaining due.
All of these coins will help ensure that you are not in debt distress and that you can repay the credit. All you have to do is obtain the agreement of the lending institution.