Credit repurchase or credit consolidation is the process of combining several credits into one. Generally speaking, when you use this strategy, you take out a new low-interest loan and use it to pay off the balance of several higher interest rate loans.
Combining credits into one can be a good idea for many reasons. The most obvious benefit of buying credit is that it has the potential to save you money. It can also help you get out of your debts more quickly and thus avoid filing with the Natural Savers Bank.
How does the credit buy-back work?
As we said above, the credit repurchase makes it possible to consolidate all your loans in only one combined credit. Only one adjustment will be made per month. Since it is a question of regrouping all its credits to make only one. It is for this reason that credit redemption is called a credit union.
In reality, it is technically impossible to consolidate loans. Each loan has its own interest rate and its own repayment terms. Each of them is basically a contract under which you borrow money and agree to pay it back over a period of time with fixed payments. So, to make a loan consolidation, you actually need to get a new, larger loan, and then use the money from it to “buy back” the other loans. More simply, you combine all your credits and buy it back with a new loan.
What are the types of credit repurchases?
We can distinguish three main categories of credit repurchase:
- The purchase of consumer credit: it makes it possible to contract a loan ranging from 200 to 75,000 dollars. the minimum duration of the credit is 3 months.
- The repurchase of real estate credit: it makes it possible to regroup the loans relating to real estate loans contracted before. The consolidation of your home loans will also allow you to review your initial interest rate. You can indeed ask your banking establishment to review it downwards.
- Mixed credit consolidation: you can also combine your consumer loans as well as your home loans into a single credit.
Finally, apart from these three types of redemption, you can also redeem your bank overdrafts, unpaid balances from your credit cards, unpaid invoices and in some cases your payday loans.
Why buy back credit?
Buying back credit can be a good solution because:
- This simplifies your finances. Instead of having many payments to track and pay on time each month, you will only have one.
- It can save you money by lowering your interest rate. To do this, you repay your loans at high-interest rates with a new loan at lower interest rates (provided that you can get a credit repayment at lower interest rates, so remember to negotiate it when the establishment of the new contract).
- It can give you one lower monthly payment. This can be the case if you buy back at a lower interest rate or if you have a longer period (amortization period) to pay off the new loan.
- It can pay off your debts faster. In this scenario, you will also need to get a lower repayment interest rate and keep roughly the same amount as what you are currently paying. This then allows more of your monthly payment to pay off your debt (principal) since less money is used to pay interest.
In order to find the best deal at a lower interest rate, you can simulate a credit buyout through online credit comparison sites.
However, do not fall into the trap of using a loan repurchase to make your life easier and thus take out several loans at the same time without you having the means to repay them. Because a loan commits you and must always be repaid.