We borrow on average over 19 years to finance housing, but how long do we have for consumer credit? There are no clearly defined rules to indicate this. However, lending institutions agree in practice not to exceed a certain limit.
A recent ceiling in real estate financing
While we have been wondering in recent months about the relevance of going into debt over 30 years to finance a property purchase, the High Council for Financial Stability ended the debate at the end of last year. The authority that reports to the Ministry of Economy and Finance has recommended that lending institutions limit themselves to 25 years, fearing that a longer maturity increases the risk of over-indebtedness. But this HCSF position only concerns mortgage loans. What about consumer loans? Well there is no maximum duration for borrowing consumer credit clearly written in the Consumer Code but there are many rules implicit in practice.
Revolving credit and repurchase of credit structured by the Lagarde law
The Lagarde law of 2010 brought order to consumer credit. It set a minimum loan amount – $ 200 – and a maximum amount – $ 75,000. You should know that before, it was not possible to borrow more than $ 21,500! In terms of duration, the Lagarde law imposes a reimbursement of revolving loans in maximum 36 months for amounts less than $ 3,000 and up to 60 months beyond. The Lagarde law also capped the duration of a loan buy-back at 12 years if it only incorporates consumer loans, and 35 years if it combines consumer credit and real estate credit. But none of this concerning conventional consumer credit, except for a minimum duration of 3 months.
Up to 96 months depending on the organization
In practice, however, lending institutions sign consumer loan contracts for up to 84 months, or a period of 7 years. Some even communicate over a maximum period of 96 months. It is the consumer credits allocated to the renovation of a home that stretch the duration to the maximum, taking into account the long-term amortization that constitutes a home. Auto credit is meanwhile 48 months on average (4 years), which is closer to the duration of ownership of a vehicle.
A work loan of $ 75,000 over 84 months, this translates into monthly payments in excess of $ 1,000 with a rate of 5.20% according to a Mother Courage simulation. Over 96 months, they fall back to less than $ 940 and the APR drops to 4.80%.