Enter a new consumer credit when you already have a loan to repay, without having to go into debt: this is the possibility offered by the loan smoothing, a solution to limit the amortization of the new credit up to the balance of the current loan (s). Here’s how to perform his loan smoothing calculation.
What is loan smoothing?
Loan straightening makes it possible to take out a loan when one already has an on-going consumer credit (or several credits at the same time). This operation aims to borrow the desired amount right away, but by limiting the amortization of the new credit until the loan is settled – or even by postponing the beginning of the monthly payments to a later date. Once the credit in progress is completed, the monthly payments of the new loan are raised. Ready smoothing is often practiced in the context of a real estate loan with assisted loans (PTZ type). The harmonization of the maturities is then done by deducting from the monthly installments of the loan the amount of the monthly payments of the assisted loans: it is the smoothing PTZ. So that PTZ and smoothing regularly go together when taking out a mortgage in addition to a consumer loan, for example.
What are the benefits of credit smoothing?
Credit smoothing allows:
– to borrow the desired sum immediately;
– to take out a new loan without having to pay the old one beforehand;
– not to pay too heavy monthly payments at the beginning of the loan;
– to remain below the debt threshold up to the outstanding credit balance;
– to carry out his project;
– to save money compared to the grouping of credits.
However, credit smoothing is usually only possible in the case of a loan at the end of the race, when there are only a few monthly payments to repay. It should also be known that the interest rate of this type of credit is often higher than the average: it is therefore necessary to negotiate well to obtain the best rate of smoothing.
Stay below the debt threshold
The main objective of credit smoothing is to allow a borrower to take out an additional consumer loan without breaking the debt ratio. This rate corresponds to 33% of the total monthly income net of expenses, ie an individual (or a household) can not pay monthly payments greater than one-third of his total income. The goal for lending institutions is to avoid over-indebtedness situations: beyond 33% of indebtedness, it is considered that a borrower has no longer enough to live (the remainder for his daily expenses: food, clothing, transport, etc.). The loan smoothing makes it possible to take out a new consumer credit without crossing this threshold or needing to pay off the repayments, and without having to reduce the amount to borrow.
How to make a simulation of loan smoothing?
Here are the steps to follow in order to perform a loan smoothing simulation:
– determine the amount of outstanding monthly payments by adding up all the repayments;
– define the maximum amount that can be reimbursed each month without exceeding the debt threshold of 33% (repayment capacity);
– calculate the amount of monthly payments that will be due for the new credit;
– perform a loan smoothing calculation to arrive at the sum to be smoothed: repayment capacity – total amount of the monthly payments – monthly payments of the new loan = sum to be smoothed.
A loan smoothing is necessary if the result is negative. This sum must then be compared with the amount of the monthly payment of the loan in progress: if it is lower, the cost of smoothing will be reasonable.
Example of a loan smoothing simulation
Take the example of a household that wants to take out a consumer credit to do work in their lodge. The couple has monthly net income of € 2,000. He is already paying a car loan of € 500 a month, which makes him a debt ratio of 25% (€ 500 / € 2,000 = 0.25 x 100). However, with a 33% maximum debt ratio, this household can not borrow the desired amount for the work, because it can only repay € 160 per month in addition to car loan payments. This is where the loan smoothing calculation comes in:
– the couple wants to borrow € 12,000 over 24 months (ie monthly payments of € 500);
– its repayment capacity is € 660 (33% of € 2,000);
– he already pays a monthly payment of 500 €;
– The loan smoothing simulation therefore gives: 660 – 500 – 500 = -340.
The sum to smooth is 340 €. The couple will therefore request a credit enhancement to his lending institution to repay only the maximum amount allowed of 160 € monthly until the end of the current car loan. It is only in a second time that he will pay his complete monthly payments of 500 €.