Getting A Loan In France As A Foreigner

The French way of life is difficult to resist, regardless of your preferred setting: bustling city, peaceful countryside, snow-covered mountains, warm and sunny beachfront. However, the issue of obtaining a French mortgage – and all that it entails – can put a stop to your plans before they even begin.

Whether you’re looking for start-up capital to launch a business or a loan for home renovations, France has finance options for both residents and non-residents, though the entry criteria can be strict. Here is what you must know about bank loans in France.

Can Foreigners Get A Loan In France?

Too often, foreigners need to be made aware that they can obtain financing from French banks, which is often worthwhile, especially when interest rates in France are lower than in their home country.

Types Of Bank Loans In France

In France, several types of bank loans are available, but the most common are general unsecured loans, also called ‘un crédit de consommation.’ These can be one-time fixed-interest loans or revolving and non-revolving lines of credit.

Unsecured General Loans

Le crédit de consommation refers to unsecured general loans. They come in various forms, including temporary, revolving, and permanent.

Common General Loan

A prêt personnel (personal loan) is the most common general loan, which can typically be taken out for any reason over a period of up to five years. In theory, these can be for any amount. However, some banks have a minimum amount (generally around €1,500), and loans for less than this amount would either be unavailable or have much higher interest rates.

Depending on your personal situation, you can borrow up to 100% of the required amount, requiring no deposit or personal contribution.

A prêt affecté or credit affecté (assigned credit) is typically obtained for a specific purpose, such as purchasing a car (a crédit auto) or renovating a home (a crédit travaux). These loans are only issued at the point of sale by the bank or financer and are paid directly to the service provider seller. If the proposed sale or works do not take place, the loan will be automatically cancelled.

These loans are frequently guaranteed against the purchase (referred to as a gage), and the loan term is always less than the total life of the purchased item or works. Rates for such loans are currently around 2.0% pa (2018), though if the loan is less than €1,500, the rate can be significantly higher.

Home Improvement Loans

Credit travaux refer to home improvement loans, whereas credit auto refers to car purchases.

You can borrow up to 100% of the item’s purchase price or use the loan to meet ongoing cash flow needs. A fixed monthly payment is made over a set period of time.

Car/Major Item Loan

A prêt affecté is a loan offered by a supplier through a finance house to purchase a car or other major item.

They are typically more expensive than personal loans, and the lender may levy a “gage” charge on the goods purchased.

Some major retailers and car distributors may offer 0% loans, but read the fine print for fees.

Leasing Credit Loan

Leasing credit agreements are referred to as la location avec option d’achat. Rather than going through a bank, the loans are frequently made by a finance house linked to a supplier.

The goods are effectively rented to you under this type of arrangement, and you are given the option to purchase them later. Normally, a deposit of 15% of the purchase price is required.

Credit Facility Loan

Finally, a variety of revolving credit facilities known as crédit renouvelable/permanent are available through a credit card or one of the larger retail outlets. Because there are no guarantees on a fixed rate with this type of credit, the rate is subject to change. Pay at least 16% per year.

Refinancing Loan

A rachat de crédit is actually a refinancing loan. It is designed to consolidate multiple debts into a single loan. The idea behind these loans is to reduce monthly repayment fees and make debt repayment more manageable. However, the associated fees, interest rates, and loan terms must be considered.

If you have multiple debts and want to consolidate them into a single loan, you can do so through a process known as rachat de crédit.

When considering refinancing loans of this type, you should pay close attention to the fees.

Borrowers benefit from strong consumer credit legislation if the loan is personal, for a time period of more than three months, and for an amount less than €21,500.

Borrowers have the right to a full written offer that includes the real rate of interest they are paying (the TEG) and the total cost of the loan.

If you change your mind about this decision after signing the contract, you have the right to withdraw within seven days.

You may also repay at any time and without penalty.

If you have difficulty making the repayments, later on, there is an interest cap on any overdue payments. In extreme cases, you can seek relief or assistance from a special public debt body located in each département.

Eligibility For French Bank Loans

If you live in France, have a good credit rating, and have a steady income source, your bank loan application is likely to be approved. However, the eligibility requirements are generally stringent, so be fully prepared to provide the bank with proof of your financial ability and means to repay the loan within the specified term.

If you are not a French resident or are self-employed, obtaining a bank loan will be much more difficult. Still, it is possible, especially if you share a good history with your bank and demonstrate your viability. Non-residents should expect to pay a 25% deposit and provide extensive financial information.

Each application will be reviewed individually, but the following are some of the most important eligibility criteria. Banks and finance houses in France operate the same way elsewhere, albeit with greater caution! So, if you want an unsecured loan in France, you should be a resident and, ideally, have a stable and consistent income.

Your Financial Profile

Because French banks are notoriously risk-averse, the better your financial profile, the higher your chances of obtaining a loan. Expect to be questioned about your employment, annual income, and other debts or liabilities. If you own a business or you are self-employed, expect to be requested for two to three years of income tax returns, demonstrating consistent revenue and a dependable client base.

According to French law, a person’s financial liabilities (including all rental fees, mortgages, and other loans) cannot exceed 33% of her net household income. So, if the monthly repayments on the specific loan you are applying for exceed this debt-to-income ratio, your loan will not be approved.

You will be required to provide detailed documentary proof of your income and financial situation. Credit scoring works in the same way that it does in most other countries. You must also have a clean credit history.

Earning Consistency

If your earnings are variable, the lender will want to see your income tax returns for several years, and the rate offered will most likely reflect the lender’s higher risk. A non-resident can obtain an unsecured bank loan in France, but you will likely have to jump through hoops.

Your History With The Bank

French banks always prefer pre-existing clients. So, the longer your relationship with the bank (and the better your credit rating), the more likely a loan will be approved. This is especially true for cases that would not be approved otherwise, such as non-residents or self-employed workers. Your application is highly likely to be considered if you have kept bank accounts in credit consistently with your bank for a number of years; have a mortgage loan, insurance, or other products with the bank. It will be ideal if you have never defaulted on repayments and currently have a good relationship with your bank advisor.

The bank’s attitude will be heavily influenced by how long they have known you and also how much trust they have in you. You will most likely be required to deposit 25% of the loan amount with them until it is repaid. However, getting one may be worthwhile because interest rates in France are generally lower than in the UK and many other countries.

If you need a loan, your first stop should be at your bank; if you have a good history with them, they are likely to be in the best position to offer you a good rate. However, it would help if you also looked into what else is available in the market. Meilleur taux and Empruntis are two of France’s largest internet credit brokers.

The Purpose Of The Loan

You can use personal loans for a wide variety of purposes, including large purchases (such as business equipment or car), work and renovations (such as on your home or garden), and personal purchases. While a loan can be used for anything, the banks are highly likely to consider a more serious proposition. A good proposal is a home improvement or the process of buying a car, than, say, a 5-star vacation in the Caribbean.

Where Should You Apply For A French Bank Loan

Most applicants will find it most convenient to request a loan from their current bank. As an existing client, you are more likely to be approved for a loan, and the best rates are typically offered to those who use multiple services from the same bank.

However, other options are available, including credit brokers such as Empruntis and Meilleur taux, both of whom offer online estimations. For large purchases such as cars or furniture, you may also find repayment options available through retailers or distributors, often offered in conjunction with a financer. Sometimes these are known as a location avec option d’achat (a rental with the option to buy). Rates can be favourable (some might even offer loans at 0%), but be sure you are fully aware of all the associated fees and charges before signing.

How To Get A Loan In France As A Foreigner?

General Rules

All banks and loan companies in France follow the same rules. Financing is determined by your borrowing capacity (capacité d’emprunt) in terms of income. Collateral assets and liens on other property only add to your credibility and cannot be used to secure a loan. Repayments to French banks or loan companies are limited to 30% of your monthly income, net of social charges and before income tax. Rent and other loans are included in the 30%. Loans are typically offered for a maximum of 15 years, though some banks allow up to 20 years and, in exceptional cases, 25 years. The main reason is that you borrow very little extra capital over 15 years and pay mostly interest in the extra years.

Banks And Down Payments 

Most banks require a 20% down payment, though some will finance the entire purchase price. Notaire fees (set-up fees, state taxes, etc.) are not financed by the bank and are not considered a down payment, which is a percentage of the sale price in the eyes of a banker. As a result, you must set aside approximately 7-8% to pay the fees that will not be incorporated into the property. If you are employed, you must have completed your trial period. Independents require two to three years of track record, and obtaining a loan is more difficult.

If you live abroad and are in need of financing to buy a home in France, you’ll need to know how to apply for a loan as an expatriate. Understanding this procedure will increase your chances of success. Continue reading for a step-by-step explanation of what you’ll need to do.

Tips For Getting A Property Loan As A Foreigner

Whether you are a resident or not, request a branch that specialises in dealing with foreigners. Most businesses have one, which makes life easier. Foreign banks and loan companies that operate in France are subject to French law. However, their staff is more accustomed to dealing with foreigners and is generally fluent in English.

Understand The Meaning Of A Non-Resident For Tax Purposes

So, as a non-resident, your case will present some unique challenges that some banks may find difficult to deal with. These challenges include employment contracts in a foreign language not known to the French bank, occupational statuses with no equivalent in France (for example, French permanent contracts are not eligible in China), strict tax regulations (for example, foreign exchange controls, FATCA), salaries paid in a local currency, and more. These circumstances necessitate specialised knowledge and are more difficult to manage for French banking institutions.

As a result, your case will be processed more slowly. Expect a 60-day delay between the initial sale agreement and the promise of the sale. When compared to French residents, it is 45 days.

Our advice is as follows. Ensure that your preliminary agreement includes a financing condition precedent that allows you sufficient time to obtain a loan, ideally 60 days. You can get your deposit back if you don’t get a loan by this deadline.

Furthermore, with interest rates as low as they are, credit is now a loss leader product that banks make use of to entice customers toward more profitable financial products that non-residents may not purchase. Banks will generally offer you higher rates to compensate for this than they would to residents or financial counterparties.

Our advice: it is possible to get a decent loan in France while living abroad, but you will need to contact a mortgage broker, who will negotiate the financial terms of your loan with a number of pre-identified banks that provide financing to expatriates.

Calculate Your Borrowing Capacity

Before you begin looking for a home, make an estimate of your borrowing capacity, so you know what your budget will be. To do so, the bank or broker will compute your discretionary income, which is equal to your total expenses divided by your pre-tax net income (including property income), with an 80% weighting. Your loan payment ratio as a non-resident cannot exceed 35-39%, the same as a traditional resident.

Whatever your borrowing capacity, you should expect to pay 15-30% of the total amount upfront. Loans without deposits are extremely uncommon for non-residents.

To verify the source of this deposit and ensure compliance with regulations, the bank will request supporting documentation, such as bank statements, gift declaration forms, and so on.

Our advice is as follows. Work with a mortgage broker to ensure that your deposit is compliant and transferable to France from the country of origin.

Determine The Type Of Property You’re Looking For And Make Sure That It Qualifies For Financing

Don’t forget to look into what types of property you can finance as an expat. Banks do not finance all types of real estate projects. This is true for construction projects, properties requiring extensive renovations, bed and breakfasts, commercial properties, and office buildings. Castles and manors are also more difficult to finance because the bank must resell them if the borrower defaults.

There aren’t many financing options for expatriates with these types of properties, but it is still possible to find a loan if you’re willing to pay a higher deposit.

Once You’ve Found A Property, Provide Supporting Documentation To Complete Your Application

Once you’ve found a property, you’ll need to complete an application with all of the supporting documentation that your bank will require in order to assess your situation and potentially offer you a loan. Please keep in mind that not all banks require the same documents. Some will require bank statements from the previous 12 months, while others will only require statements from the previous three months.

Hiring a mortgage broker who is used to dealing with expatriates will save you time and avoid any unnecessary back-and-forth over these documents. Based on your marital status, job situation, and country of residence, the broker will send you a complete list of documents required to evaluate your application.

You will need a complete application, legible documentation (avoid sending smartphone photos of your documents), and, if necessary, translations by our contractors. This increases your chances of success. In fact, some banks will refuse to review an application if it is incomplete or contains documents written in a foreign language.

Our recommendation is to start this process when your expenses and job situation are stable.

Rates And Charges On French Bank Loans

By the standards of many other countries, the basic interest rates are generally low, starting at around 2.0%.

However, you should expect to pay an administrative fee, known as Frais de dossier, but shop around because no fees are required in some cases.

You may also be required to obtain life insurance, which will cost approximately 0.5% of the loan amount. Depending on your circumstances and the size of the loan, this condition is not always required.

Accepting the headline nominal rate of interest is not acceptable because lenders are required to inform you of the real (APR) rate of interest (see the TAEG below), which includes the cost of the fees.

As a result, a low nominal rate with fees may be preferable to a high nominal rate with no fees.

APR In France – Taux Effectif Global (TAEG)

The Taux Effectif Global (TAEG) measures the real rate of interest on your loan because it includes the cost of loan fees. The TAEG is highly regulated and provides consumers with strong protection against lenders who may attempt to misrepresent the true rate of interest on the loan.

Perhaps equally important, it allows lenders to make genuine comparisons between the rates offered by different lenders. The TAEG must be used in all lender advertisements. It includes all of the necessary costs associated with taking out the loan. When there are no legal, administrative, or insurance costs associated with the loan, the TAEG can only be the nominal rate of interest.

When the rate is fixed, the TAEG is simple to calculate. Where the rate is variable, the advertised rate is only for the first period of the loan, which could be the first quarter or the first year, depending on the length of the fixed period. If the interest rate is variable, the law requires that the modalities and frequency of change be specified in the written offer.

Debt Problems

If you are unable to meet your debt obligations, you can seek assistance from the Commission départementale de surendettement, which will represent you in negotiations with the lender. The Commission is a branch of the Banque de France.

If necessary, they will file a lawsuit to seek payment relief or to prevent the lender from taking further legal action. At the very least, they will attempt to reach an agreement with the lender on a repayment plan. They can also order a reduction when it comes to the rate of interest payable or a repayment moratorium.

Each département in the country has a Commission, the details of which can be obtained from your Préfecture.

Conclusion

We hope our guide has provided you with actionable steps for obtaining a loan in France, particularly as a foreigner. Please do not forget to keep in mind that we are not financial advisors. Taking out a loan should not be done on the spur of the moment. Before signing any contract, use the various loan calculators provided by the companies above to evaluate your financial condition and ability to repay the loan in full.