The zero-rate loan, is a regulated loan with no interest or fees. It exists since 1995 in France and has been set up to improve the affordability of the most modest households. It is a supplementary loan, which can only be subscribed in addition to a main loan. Often the loan at rate 0 will be considered as a personal contribution by the banks,
The loan is regulated by a contract established most often between a bank
In terms of finance, the bank loan, or the loan from the point of view of the lender, is based on the very principle of credit, ie in this case to have a sum of money in a time T subject to repayment by monthly installments in the future. The loan is regulated by a contract established most often between a bank and an individual or a household. The payment obligation is then assigned a term and an interest rate. The borrower will have to repay an amount greater than the one borrowed for the lender to see a benefit (it is his remuneration). This is done within a specified time and predefined in advance in the loan agreement. It is then an investment for the creditor, allowing the beneficiary himself to invest while his means would not allow him. As for interest rates, which refer to a percentage of the sum borrowed, these are calculated according to many parameters, namely:
- The duration of the loan (the longer the duration of the loan, the higher the interest rate will be)
- The risk taken by the lender, depending on the borrower’s profile,
- Market conditions: The price at which banks will buy money on the financial markets, here defined by the European Central Bank (ECB).
Why are zero interest loans possible?
While interest rates make bank loans possible, one is entitled to ask how the 0% loan can be profitable. To be able to explain it, it is important to note that interest rates have a strong influence on the economy: the lower they are, the more they will boost it (increased economic growth in the country and the labor market), and the higher they are, the more they will curb it (decrease in the number of purchases and therefore financial exchanges). Some sectors of activity depend directly on the value of these interest rates, such as automobile and real estate, since most households are forced to make a loan to buy a car or a house and that, if interest rates are high, there will be fewer loan applications.
The rate 0 loan, which is a government initiative, does not include interest rate fees for the borrower. However, they are not non-existent. It is actually the state that will take them in charge to allow the French who have too modest income to be able to make a loan and claim the acquisition of real estate. The state will end up financially since by absorbing the interest rates of the loans at rate 0, it will improve the growth of its own economy.
The zero interest loan since its creation
The rate 0 loan has been in existence for more than 20 years and has already undergone several changes. Through the years and the various modifications that have been made, its original purpose remains the same, namely to promote the social home ownership of low-income households.
Prior to the creation of the 0 rate loan, the assisted homeownership loan (PAP) had a similar objective but the implementation of the loan was more complex. Unlike the 0-rate loan, the assisted homeownership loan was a principal loan and it provided only a few benefits, significantly less attractive than the 0-rate loan. is both more attractive and simpler.
When it was created, the zero interest loan could only represent 20% of the total amount of the operation (in addition to an initial loan) and was made available to allow first-time buyers to become owners. A first-time buyer is a person or household who has not owned their principal residence for at least two years. This includes all tenants in their principal residence, even those who already own a second home. At that time, first-time buyers accounted for 86% of the French population.
The financial terms of the loan rate 0 vary depending on the geographical area of purchase, they are divided between the Ile de France and the Province, against 3 regions for loan assisted access to the property. In parallel, like its predecessor, the 0-rate loan is reserved for purchases of new buildings or the purchase of old buildings whose renovation represents at least 35% of the amount of the transaction. In 1996, a provisional measure reduced this threshold to 20% of the total and increased to 35 on 1 January 1997.
In 2001, the General Inspectorate of Finance (IGF), the General Council of Bridges and Roads (CGPC) and the director of the National Agency for Housing Information (ANIL), all in charge of the evaluation of possible problems of implementation of the loan rate 0, only go back one sensitive point. This is the assessment of the applicant’s income on which depends inter alia its eligibility for the loan rate 0 and the maximum repayment period thereof. The assessment of income was based on the taxable income on the tax return of the applicant. In the same year, a reform is put in place to use the tax revenue of the loan applicant as a reference to make the assessment of income more realistic since it is calculated on the basis of the net amount of the applicant’s income.
Since the Finance Act of 2005, to favor areas where the market is not favorable to the supply of new housing, the rate 0 loan extends to new or old properties, without condition of renovation work . In 2006, the financial conditions for access to a loan at a rate of 0 for people wishing to buy property in Ile de France were reassessed and the ceilings were revised upwards: The loan rate 0 can finance up to 30% of the total purchase in zone A. The zones have been redefined in 3:
- Zone A: Paris region, French-Swiss border region and Côte d’Azur. This area area is considered tense depending on the low availability of real estate compared to the high demand.
- Zones B: Agglomerations of more than 50,000 inhabitants.
- Zones C: The rest of France
These areas are used primarily for purchases of older dwellings, Zone B and Area C are grouped together for purchases of new properties.