Month: September 2019

Termination of a revolving credit

by Sharon Garcia

 

We all know, subscribe to a contract, whatever it is, it is usually quite simple. To separate from it, it is much more complicated. Between the deadlines to be respected, the specific conditions, the tacit renewals, and what do I know yet, it is sometimes very difficult to terminate a contract. Fortunately, the laws have evolved a little in our good old France. So now, canceling a revolving credit has become very simple.

Act Châtel.

Act Châtel.

Indeed, since August 1, 2005 and the implementation of the Châtel law, it is possible to cancel a revolving credit at any time. In fact, you must of course have paid all the amounts borrowed, as well as any penalties provided for in the contract. Here are the two most common cases.

Termination on the anniversary date.

Termination on the anniversary date.

Since the Lagarde laws of 2012, the revolving credit has changed. Establishments and subscribers now enter into a contract on a one-year basis, renewable by tacit agreement on each anniversary date. However, 3 months before the anniversary date, the financing organization from which you have signed your contract must send you a letter in which it must stipulate the conditions of the contract for the coming year. This information must contain three elements, including the terms of termination.

In fact, you have up to 20 days before the anniversary date to send a mail to the establishment in question. In this mail, you simply specify that you want to see your revolving credit stop, and you accompany your mail with a check of the balance, if any.

You can do it because you do not want it anymore or because you do not accept the new conditions.

Termination due to the non-use of the revolving credit.

In case you do not use your reserve of money, know that it is suspended after a year of inactivity. However, it may be reactivated in the following year. In fact, you have to wait two full years without any action on the revolving credit so that it is terminated de facto. If, despite this time without use, you still have sums to settle, you must pay the balance at the same time.

Other case.

Other case.

There is one last case of termination. This is the revolving credit to which you have subscribed but which you do not wish to activate. If you are still within 14 days of the subscription, you have the right to request the termination of the contract. Formerly limited to seven days, this period of termination was extended by Law No. 2010-737 of July 1, 2010. Do not hesitate to use it when you retract.

In short, and to sum it up, it is possible to cancel your revolving credit when you wish, as long as the reserve is complete and you have no money left to repay. However, a non-employee revolving credit generates no fees and always leaves the possibility of an appreciable pay-out in case of a hard blow.

The total cost of credit

by Sharon Garcia

With these data, it is possible to establish the schedule of your repayments. This is called the amortization schedule of your loan. This document is obligatorily attached to the loan offer. It indicates the amount owed by the borrower at each maturity by detailing the distribution of the repayment between: the principal, the interest, the borrower insurance contribution and the capital remaining due after each monthly payment. In the case of a variable rate loan, it will only be possible to draw up an amortization schedule if the different interest rates and their date of application are established from the outset. But if the rate is indexed to uncertain data such as general interest rate developments, it will be impossible to establish the depreciation schedule that will actually apply.

The overall cost of your loan is equal to the difference between the total monthly payments (plus fixed costs) and the amount of the loan. This overall cost must be communicated to you by your banker.

This essential data is not the only criterion of choice. The financial burden you will have to pay at each term, what it will weigh in your budget is also an important factor in the decision. Never forget that the expenses of a credit are constrained expenses, fixed expenses in your budget. Alas, the credit that has the least overall cost is not necessarily bearable for your budget. You have to take into account these different dimensions, partly contradictory, to define the amount you can borrow, the repayment term and the interest rate you can get.

For example, choosing a longer term for a mortgage (for example 20 years instead of 15) usually leads to paying a generally higher interest rate for a longer time. The overall cost of credit is higher. But monthly payments are lower. If you set a priority goal of not exceeding a monthly financial burden limit, you can borrow more.

An encrypted example

An encrypted example

Hypothesis B: The amount of the loan is the same as in the hypothesis A. The credit is extended by 5 years. The interest rate is 0.2% higher. The cost of credit increases by 44% but monthly payments decrease by almost 15%. Assumption C: The credit is extended by 5 years compared to hypothesis A. The interest rate is 0.2% higher. The amount of monthly payments is stable (at $ 1,600). The overall cost of credit is 64.5% higher, but the amount of the loan is increased by almost 15%!

The repayment terms

The repayment terms

The method generally used is that of periodic repayments of a constant amount. This is most often monthly payments. All simulations provided by our calculator are based on this assumption. To measure the benefits, one can make the comparison with different methods of reimbursement. An amount of $ 50,000 over 4 years borrowed with an overall interest rate of 9%. Suppose for simplicity that payments are made by annuities.

The overall cost of credit is significantly higher (+ 50%) because the interest covers the entire capital for the entire period. However, this formula can be useful in two cases: when the borrower anticipates a cash receipt the year of the end of his loan, or if he can save himself the sums he will not have to pay. every year and if he can place them with a sufficient return (equal to or higher than the additional cost of the loan).

The cost of credit

by Sharon Garcia

You can get credit from a bank or from a specialized credit company.

A credit creates reciprocal commitments in a contract. The lender undertakes not to claim the principal (the loan sum) in advance and the lender undertakes to repay the principal according to the agreed terms. In addition, in order to remunerate the bank for the service it renders (to make available, in a short time, a sum of money) the borrower must pay him interest.

A distinction is made between real estate credit and consumer credit: the rates and borrowing conditions are not the same in both cases, in particular because the guarantees taken by the banks are infinitely less important - or nonexistent - in the consumer credit, hence the higher cost.

The level of interest rates

The level of interest rates

Each bank is free to set the interest rate of the credit it grants in the limit of the rate of wear. The interest rate or nominal rate of credit is the rate used as a basis for calculating interest. This rate is expressed as a percentage and for a full year. It is the global effective rate ( APR ), also called APR (A for "annual") that allows comparisons between different credit offers.

There is strong competition among banks, particularly in the credit sector. To attract customers - especially young people - banks offer very low rate loans. In recent years, because inflation was very low and key rates (set by central banks ) very low, credit rates, including real estate, have fallen considerably.

Mortgages: rates in the 2nd quarter of 2019

 

Average effective rate in Q2 2019

Wear rate applicable on July 1, 2019

Fixed rate loans under 10 years

2.04%

2.72%

Fixed rate loans from 10 years to less than 20 years

2.09%

2.79%

Fixed rate loans of 20 years and over

2.23%

2.97%

Floating rate loans

1.85%

2.47%

Relay loans

2.37%

3.16%

The average effective rate results, for each loan category, from the average TEG (total effective rate) observed during the quarter in question. In France, in order to protect borrowers, the law sets usury rates which are maximum rates that can be applied to the loan categories concerned. 

Consumer loans: consumer loan rates in Q2 2017

 

Average effective rate in the 2nd quarter of 2019

Wear rate applicable as of July 1, 2019

Less than $ 3,000

15.81%

21.08%

Between $ 3,000 and $ 6,000

9.37%

12.49%

Greater than $ 6,000

4.44%

5.92%

The total cost of credit

The total cost of credit

The total cost of credit is the "price" of credit. It is expressed in USD. It includes the total amount of interest, fees, insurance, etc. It adds to the borrowed capital.

The total cost is essential but it is not the only one, it is important to know the monthly payment to be refunded.

The borrower must be able to repay

The borrower must be able to repay

Credit is a very useful tool for financing projects. This is often the only way to buy a home. But do not go into debt too much. Banks are careful because an over-indebted client may not repay his loan and too many customer failures can lead to the bankruptcy of the bank itself. This is why, in France, the banks verify, when they grant a mortgage to a household, that the debt ratio does not exceed one third of its income. The household, meanwhile, before committing to a loan, must ensure that the monthly payment will be sustainable over the long term.

The longer the repayment period of a loan, the higher the total cost, even if the rate is the same. In fact, interest is calculated at each maturity on the outstanding capital. If the repayment rhythm is slow, with low monthly payments, the share of interest increases and increases the total cost.

In most loans, the monthly payment is fixed and includes a share of capital and a share of interest. In the first years of the loan, repayment is mainly interest and little capital, the situation is gradually reversed.

Over-indebtedness

Over-indebtedness

Over-indebtedness is the inability of a natural person to meet his or her borrowing costs or the payment of bills for current expenses (rent, electricity, heating, etc.).

In case of over-indebtedness, it is important to react quickly. It will be a matter of filing an over-indebtedness file with the Commission of over-indebtedness of Individuals of the departmental branch of the Ranco Bank.

Once the file has been accepted by the Commission, a solution, which seems to be the most adapted to the situation, is proposed. The goal is to help the individual overcome their financial difficulties over the long term while balancing the interests of the debtor and the creditors.