Debt rescheduling, also known as credit repurchase, in principle makes it possible to considerably reduce your monthly payments. However, improving the budget varies from situation to situation. In which case does this solution pay off? What should you watch out for and how much can you expect to save? We offer a product analysis.
What is debt rescheduling?
Debt rescheduling, loan repurchase, credit consolidation, this product has different designations. The principle remains the same: a current consumer loan is fully reimbursed by a new loan. The new loan replaces the old one, with different contractual terms which make it possible to lower the monthly cost. In addition to the redemption of the “credit” itself, it is also possible to use the new loan to repay other commitments such as leases or unpaid credit card balances.
What is this solution for?
As its name suggests, this service is used to reschedule its current debt. Concretely, it is essentially a question of obtaining a supplement of cash , or a fall of monthly payment , to see sometimes both at the same time. In practice, debt rescheduling allows:
- Get a better interest rate on the new loan. The possibility of reduction will depend on the current rate. Thus, getting a drop on a contract with a rate of 9.9% will be simpler than if the current rate is 6.9% for example.
- Extend the repayment tenure. If the current credit must be repaid within 12 months, extending this period to 24 months will significantly reduce his monthly bill.
- To get extra cash. This solution can be combined with a drop in rates as well as a change in the repayment tenure.
- Consolidate other outstanding commitments: unpaid credit card balances and leases, for example. In addition to the financial interest, this solution is also of practical interest, because it allows you to group several invoices into one and have a better overview to manage your budget.
As an example, we consider that a loan repurchase easily saves up to 40% on monthly bills. It is important in this kind of situation to be able to call upon a specialist like Multicredit, also active in the repurchase and regrouping of debts, in order to be able to profit from the best possible offer in order to reschedule its debt.
A new contract
Important point to take into account, a credit rescheduling legally requires the conclusion of a new consumer credit contract. As such, the redemption is subject to the same limitations and conditions. This solution is not intended for people with lawsuits, ZEK codes, or simply an insufficient budget to ensure the reimbursement of monthly payments.
When to use this service?
Ideally as soon as possible. Anyone who repays a consumer loan in full before the end of the term receives the overpaid interest. This also applies during a loan rescheduling. Carrying out the consolidation as soon as possible after the conclusion of a loan therefore makes it possible to minimize the interest paid on this loan. In addition, reducing the monthly payment is sometimes done at the expense of total interest costs. Indeed, a longer repayment period reduces the monthly cost, but increases the interest paid in total. A rate cut, on the contrary, makes it possible to reduce both the total interest and the monthly payment.
Example of calculations
Take the example of Mr Dumont, with a credit of USD 15,000 over 24 months, an invoice of USD 5,000 on his Mastercard and USD 2,000 on his Visa. His credit is 9.9%, and the rate on his credit cards is 12%. He pays monthly 688 USD for his private loan, to which is added a repayment of 326 USD each month to gradually repay his credit cards. In total, he therefore pays 1’014 USD / month , interest and reimbursement included. Total interest on all student debts at 2,385 USD.
With a loan repurchase of USD 22,000 (credit balance + Mastercard + Visa) over a period of 24 months and a rate reduced to 7.9%:
- The monthly cost drops to 991 USD / month
- Total interest drops to 1,790 USD
- Mr Dumont reimburses a total of 23’790 USD
With a loan repurchase of 22,000 USD over a period of 36 months this time, and a rate of 7.9%:
- The monthly cost drops to 686 USD / month
- Total interest rises to 2,683 USD
- Mr Dumont reimburses a total of 24’683 USD
In order to save money, Mr. Dumont should therefore choose the 24-month option, which would save him USD 595 in total. However, if his budget is too tight, his monthly payment for the 36-month option is USD 328 cheaper than without reimbursement, but he pays USD 298 more in interest because of the longer term. It is therefore important to carefully consider which option to choose.
It makes sense to call in an expert
Calculating debt rescheduling can get complicated quickly. It is therefore important to calculate the exact cost per month and in total for each option in order to make a good decision. It is therefore best to call on an expert who can analyze the current situation in order to find the best possible solutions . To this end, Multicredit offers a free analysis leading to tailor-made solutions, and can help you find the best solution.