Month: March 2020

Why can it be smart to take out a long-term loan with many credit providers?

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A long-term loan has a special appeal to many people, but especially to people with bad credit, because the payments are more affordable from month to month. While it takes less time to pay off a short-term loan, the amount you have to pay each month can be limiting. That is why it is important to look at all the details of a loan that you take out, especially if you have bad credit, because you want to use this loan to improve your credit score for the future. This article outlines some of the “fine print” of taking out a long-term loan.

Borrower Beware

Borrower Beware

When you are in a difficult financial situation and have bad credit, taking out a loan is a risk for both you and the lender. Given your bad credit history, you will be penalized in terms of interest and terms, but that’s no reason to make you feel inferior or in need of a favor from a gracious lender. There are many lenders who practice predatory practices that try to scare borrowers out of crazy costs and high interest by making them feel like they have no other choice. Stay away from these people.

There are many options for finding a loan

There are many options for finding a loan

If you’re looking for a long-term unsecured loan, don’t forget that this is serious business. As a borrower, you need to understand the risks of any available option. Ask yourself why you need this money in the first place and decide if you can’t get it from non-traditional means like a friend or family member before looking for a professional lender. In many cases, borrowing can entail little to no private interest and no background check is required. Just make sure you have a written agreement so that there is no gap between yourself and the person lending you money. Be responsible.

Collateral is key to low interest rates

Collateral is key to low interest rates

You need to understand that in the borrowing world, those looking for unsecured loans are considered a huge risk, especially if those people have a bad credit history. Most lenders simply will not work with you and those who do will often demand very high interest rates and strict repayment terms. Failure to repay an unsecured loan will seriously damage your credit history and put you in a much larger debt than a guaranteed (collateralised) loan will.

How to prepay a home loan?

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You took out a loan to finance your property purchase several years ago and an unexpected cash inflow or the sale of your home allows you to consider settling the outstanding capital of your home loan before the date provided for in the contract. You have the full right to repay, in whole or in part, a loan in advance. Better to know the cost of this approach.

Please note your contract may however prohibit early repayment of an amount equal to or less than 10% of the initial amount of the loan, except in the case of its balance. But beware, depending on the contractual clauses you do not always have an interest in committing to this process.

Limited penalties

Limited penalties

Most loan contracts provide for indemnities in the event of early repayment (IRA). Their amount is limited by law. These indemnities may not exceed the equivalent of one semester of interest at the average credit rate, while being capped at 3% of the principal owed or six months of interest at the average credit rate of the principal repaid.

In addition, your contract may stipulate that prepayments less than or equal to 10% of the initial loan amount are prohibited, except for the balance of this loan. If you have taken out a long-term loan, twenty years and beyond, the penalties are generally no longer required beyond a certain number of years.

Important
When taking out your contract, if you think you might be able to repay your loan in advance, try to negotiate the cancellation of the penalties.

When can you be exempt from penalties?

When can you be exempt from penalties?

If you took out a loan after July 1, 1999, you will not be liable for compensation if the early repayment is due to the sale of your accommodation in the event of a change of workplace, death or forced cessation of activity of one of the spouses.

If you sell your home to buy another, you will not pay compensation if you transfer your loan to your new acquisition.

The right time to prepay

The right time to prepay

Before considering early repayment of your credit, weigh the pros and cons. If you balance it when you sell to buy: no problem if your new financing is granted by the same bank. If you are not in this situation, make your accounts.

If you only have a few years of credit left, paying off may not be a good deal, especially if the interest rate is low and you are subject to penalties. In this case, you may have an interest in investing the amount you have, especially if the remuneration is attractive. On the other hand, if there is a long repayment period remaining (longer than the period during which you have already repaid your loan), repayment will prove to be advantageous.

Partial refund

Partial refund

If the amount received cannot cover the full amount of the principal owed, it is possible to opt for a partial reimbursement. You can reduce the monthly payments while keeping the initial repayment period. Another solution: reduce the duration of the credit, by continuing to pay the monthly repayments initially planned. This financial transaction makes it possible to lower the overall cost of the loan, unlike the previous solution.

Procedures

Procedures

If you choose to prepay, you must send your request to your bank by registered mail with acknowledgment of receipt one month before the desired date for reimbursement. No need to justify yourself. Upon receipt of your mail, it must send you all the necessary information, including the financial consequences of your approach.

For credits taken out before 2016, the establishment will send you as soon as possible all the figures allowing you to know the amount of the sums to be reimbursed. You may be billed for this statement.

Loan insurance: group contract or delegation for a smoker?

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Being a smoker greatly increases the risk of claims for borrower insurance, which is therefore more cautious in providing guarantees at competitive rates. Most impose surcharges or offer to buy certain guarantees at far from advantageous prices. What is the difference in this context between group contract and insurance delegation for a smoker?

Insurance delegation and group insurance

Insurance delegation and group insurance

Loan insurance is inevitable for any real estate purchase covered by a loan. For a long time, the rule has been to take out the group contract submitted by the lending institution, but the 2010 Lagarde law opened the door to competition by authorizing the delegation of insurance taken out with another body. Two very different options: group insurance consists of pooling risks by standardizing the types of insured, the guarantees offered, and the premiums.

This type of contract is simple and quick to sign, but only very briefly takes into account the actual situation of the borrower. Conversely, insurance by delegation allows competition to be played by soliciting insurance proposals from organizations outside the lending institution, provided that the equivalence of the guarantees is respected.

Why use the insurance delegation?

Why use the insurance delegation?

When you know that a mortgage loan insurance costs on average twice as much for a smoker according to Ganhu, it can be interesting to play the competition. But the delegation of insurance requires pushing the door of many organizations, in order to study the precise situation of the borrower who smokes, and find the one who agrees to offer the best conditions of cover at the best price.

Loan insurance brokers are available to take advantage of their privileged link with insurers, but also their experience and professionalism to help the borrower to carry out this time-consuming and technical task which makes it possible to find the best guarantees at the best tariff. In any case, quitting smoking can reduce the cost of your loan insurance premiums. After twenty-four months without a cigarette, you are no longer considered a smoker! Conversely, be careful because a false declaration may result in the nullity of the contract.