The level of guarantee requirement of a financial institution fluctuates according to the amount of the credit buy-back, the nature of the loan (mortgage, consumer credit, revolving credit, bank debts, etc.) and the number of loans that it brings together. The financial institution also analyzes the profile of the borrower, his personal, professional and financial situation to better assess his debt ratio, his borrowing capacity and therefore, ultimately, the risk of non-repayment of the loan..
Not everyone can provide equivalent guarantees, like a tenant versus an owner who can mortgage their property. So, from mortgage loans to joint and several guarantees, from pledging of investments to voluntary transfer of wages, what are the options available to borrowers and their implications?
Here is an overview of the guarantees in the context of a loan buyback likely to result in your efforts to benefit from the advantages of a debt consolidation: the reduction of your monthly payments, the simplification of the management of your budget and the savings generated by the possible fall in the interest rate.
What guarantees are required for a loan buy-back?
As part of a loan buy-back transaction, the lender generally requests a guarantee from the borrower. Thus, in the event that the latter fails to repay, the bank can call on the guarantee and obtain payment of the debt.
There are a number of guarantees intended to finance the repurchase of home, personal or consumer loans. Depending on the analysis of the transaction and the borrower’s situation established by the financial adviser, these guarantees are adapted. Among them, the main ones are:
- mortgage guarantees, which include the mortgage and the lender’s lien;
- joint and several surety of a natural person or a surety company;
- the redeemed;
- the pledge of savings contracts (life insurance, term account, etc.);
- voluntary assignment on wages.
The repurchase of credit with mortgage guarantee
The repurchase of credit with mortgage is reserved for the owners within the framework of a repurchase of mortgages. The mortgage consists in granting the right to the lending organization to cover itself in the event of default of the debtor via the real estate. The financial institution can thus seize and then auction off the house or apartment, and be reimbursed on the money collected during the operation. It is a traditional guarantee during a repurchase of credit which is obviously not without risk for the borrower.
The loan with mortgage guarantee requires going before a notary, the only person authorized to finalize the procedure. The notarial act has a cost which must be taken into account in the overall calculation of the loan repurchase. Among these costs, it is necessary to mention:
- the fees of the public officer,
- costs of land advertising,
- the land advertising tax
- registration fees.
- buying back a mortgage also entails the payment of mortgage release costs, if such a guarantee had been taken for the previous financing.
In the context of a repurchase of home loans, it is also possible to request a PPD (privilege of lender of money). Less expensive than a mortgage, this solution is however limited: it can only guarantee an old property. Any works or constructions included in the operation cannot therefore be guaranteed via a PPD.
Good to know : for the mortgage to be valid, it is recommended that the amount of the repurchase of a mortgage does not exceed 80% of the value of the property estimated by the notary or a real estate agency.
Guarantee your credit repurchase with a surety
The repurchase of credits with mortgage is not the only option to guarantee a restructuring of its debts when one is owner. The latter may also have recourse to bail.
If the guarantor is a natural person, we speak of a joint guarantee for a credit buy-back. This person is therefore also united in the event of default in reimbursement. In other words: the lending institution can require the surety, a relative for example, to pay a due date in the same way as if it were it which had taken out the loan. This type of collateral is mainly used for small loans such as student loans or consumer loans.
For the repurchase of credit, the guarantor can be a legal person in the form of a mutual guarantee company which practices the mutualisation of risks. The subscriber pays a sum proportional to the redemption of credit placed on a guaranteed fund. In exchange, the guarantee organization undertakes to pay the claims in the event of default. This recourse costs on average between 2% and 3% of the credit repurchase.
When consolidating loans, the surety draws its interest in two situations:
- the mutual guarantee organization avoids taking out a mortgage guarantee;
- mortgage guarantees make it possible to find a third party likely to put their property in addition to the guarantee (for example the property of direct ascendants).
The repurchase in guarantee of the repurchase of credit
A borrower can guarantee his repurchase of credit by operating a repurchase which is defined in law by the capacity of the seller to buy back the property sold (without obligation to do so). The time to recover the property varies between 6 months and 5 years.
The repurchase is a possible solution in the event of less cash receipts or a bank card. The advantage is that the seller can continue to live in the property even if he is no longer the owner.
The money obtained through the real estate transaction gives him a substantial contribution to take out a larger loan buyback able to repay his old loans in progress. The operation results if necessary in eliminating its filing at the Banque de France. He then finds a reorganized financial situation to buy his property as the repurchase authorizes him.
Pledge as collateral for credit repurchase
The pledge is a contract made between a debtor and his creditor, the first handing over something to the second as a loan guarantee. For example, it may be a life insurance policy or other secure financial savings products such as a term account. The collateral is then blocked during the loan period.
In the event of default in the payment of maturities, the lending organization recovers the pledged products to sell the securities and reimburse themselves with the money from this operation. This alternative has the advantage of generating low costs but is mainly intended for individuals who have a large portfolio of securities (securities, stocks, etc.).
Good to know : if the sum pledged is less than the amount of the credit repurchase, an additional guarantee can be claimed by the bank.
The borrower can also pledge property as collateral for grouping loans like a vehicle. The pledged property cannot then be sold without the agreement of the financial institution or only when the total repayment of the loan is made.
Voluntary assignment on salary as a guarantee of credit repurchase
To take more security and validate the repurchase of credit, the lender can demand an assignment on pay. The latter ensures the payment of monthly installments by directly deducting the amount from the salary. This attachment of wages is carried out via the employer, the latter not being informed of the reason.
Voluntary assignment on pay is often inevitable for owners as well as for tenants whose debt ratio is high and the amount of credit bought back consequent. An employee who chooses to arrow part of his salary voluntarily towards his creditor completes a declaration to this effect at the registry of the district court.
The law regulates the transfer of wages:
- it notifies a maximum quota not to be exceeded;
- it establishes a legal minimum for the remainder of living for remuneration in 2018 of less than $ 21,760 / year (example: a ceiling of 1/10 th of the amount for annual remuneration between $ 3,760 and $ 7,340);
- it excludes certain amounts received (example: family allowances paid by the employer).
Loan insurance for credit repurchase
The lender can also apply for additional borrower insurance : it is disability death insurance which can be supplemented by insurance in the event of sick leave and loss of employment. It is a cover for the financial institution in the event of death or accident of life, but also for the borrower who avoids placing on his family the burden of the repayment of the installments. This is borne by the insurer up to the guaranteed percentage and the damage suffered.
In the context of a repurchase of credit for retirees, its cost is far from being negligible. It is possible to negotiate with the financial institution or to use the insurance delegation to take out personalized credit insurance more suited to the borrower’s profile. Note that loan insurance can now be canceled during the first year of the contract or on the anniversary date. The only condition is that the level of cover is at least equivalent.
Credit buy-back without guarantees: is it possible?
Redeem a loan without having to provide collateral? Yes, it is possible. This solution simplifies the file, avoids a certain number of administrative formalities and saves on warranty costs.
However, this possibility is subject to the appreciation of the bank. Thus, borrowers with a very attractive profile for the lender (significant wealth, level of income, etc.) will be able to claim a loan buy-back without guarantees.
It is therefore necessary to prepare your dossier well and to highlight its strengths. Obtaining a loan repayment without collateral is also possible when financing small amounts, in particular in the context of financing personal debts and consumer loans.