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Is the accumulation of loans allowed in France?

According to the Banque de France, annual growth in consumer loans reached 2.9% in the first quarter of 2022, for a total outstanding of 195 billion euros. An increase that stands in contrast to the current decrease in the number of home loans, which are suffering from the rise in interest rates. According to the Statista statistics portal, there are still almost every third French household that has had at least one mortgage in progress for more than twenty years. “At least one”, because it is possible to combine several loans in France.

Is the accumulation of loans allowed in France?

French law does not contain any restrictions on the accumulation of loans. In other words, it is in principle possible for a private person to take out as many loans as they need. And this applies to all types of loans. It is thus permitted to combine several consumer loans, several housing loans or even several consumer loans and housing loans in between.

The French loan system makes it not uncommon for a person to have several loans at the same time. In addition to dividing consumer loans and home loans into two large families, this system distinguishes between allocated loans and unallocated loans in consumer loans. There are therefore, for example, loans specifically intended for the purchase of a vehicle (car loan, motorcycle loan), loans exclusively linked to the execution of construction work (work loans), personal loans that can be used as one chooses. Stack loans can also be a necessity for some individuals when they are faced with multiple financing needs at the same time. For example, for the close purchase of two properties, or for the purchase of a property that needs to be renovated, or for the purchase of a car combined with the need for cash (which can be financed with a private loan).

What are the limits for stacked loans?

The accumulation of loans still occurs within the framework of the conditions for obtaining each credit organization. The High Council for Financial Stability (HCSF), considered the French banking policeman, requests the various lending institutions to ensure that the debt ratio of new mortgage subscribers does not exceed 35%. Also called bet rate, household debt ratio is calculated by dividing all of a household’s expenses by all of its cash income to obtain the proportion of income available for credit repayment.

In general, it is understood that credit unions will not grant a loan (whether for real estate or consumer) if a household has a debt ratio of over 33%. It is up to each individual company to adapt its decisions to the profile of the different applicants. It is therefore possible in France to combine as many loans and loan types as you wish, as long as you have the ability to repay. You must always be aware that a loan obliges its subscriber to repay. According to a report by the Credit Observatory, dating from 2009 and providing one of the few figures on the subject, 3 million French households at the time used a home loan and a combined consumer credit.

What are the solutions for borrowers who have accumulated too many credits?

The risk of accumulating loans for a person is that he finds himself in a situation of excessive indebtedness, despite the authorities’ requirements for compliance with the level of debt of the subscribers. To avoid reaching this point, people whose interest rate remains adequate can resort to credit consolidation. This process, which is increasingly in demand by French households, consists of consolidating all its loans into a single credit, which will have a single interest rate and a single monthly payment.

More readable for its subscriber, the grouping of credits can allow the indebted household to obtain a more interesting interest rate or reduced monthly payments (or even both in periods of falling rates), to be able to breathe better financially. While credit consolidation can be seen as the opposite of loan stacking, it can also allow the borrower to obtain additional financing. When the debt ratio allows, a grouping of credits can actually be accompanied by a request for additional cash (a new loan of a certain amount), which can be used by the individual for the project of his choice.

(By the editors at the hREF agency)

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