Whether car or new kitchen – when it comes to fulfilling a long-cherished desire or to make a much-needed purchase, many consumers opt for a installment loan. With it, they receive the required amount of money immediately and can make the repayment in low monthly installments. However, if you have accumulated several installment loans over the years, the monthly burden can be a problem. In this case, a debt rescheduling loan can help. With him one or more loans are replaced by a new loan. The result is a lower monthly rate and lower borrowing costs through interest savings. The latter may also be the main reason for the rescheduling of a single loan, which was concluded at a much higher interest rate. Whatever your reason for rescheduling, here are the answers to the most common questions.
Debt rescheduling is a normal loan that replaces one or more existing loans and combines them into a new single loan (contract). Debt rescheduling generally aims to save costs, for example, by combining multiple loan installments into one, and reducing the monthly financial burden. Often, debt rescheduling is also used when money can be saved in a low-interest phase with a new loan. The procedure for a rescheduling hardly differs from the application for other loans. As a rule, banks demand the same collateral for the new loan as for the existing loan (s). Also a new credit check as well as a query of the personal private credit score belong to the procedure of the banks with the assignment of a debt rescheduling loan.
Theoretically, debt restructuring is always possible. The only requirement is that the existing loan agreement (s) can also be terminated. In the case of credit agreements concluded before June 11, 2010, the termination right agreed in the contract must be observed, which generally provides for a three-month notice period. For contracts concluded after this date, customers may cancel at any time. Reason: New consumer credit guidelines came into force in June 2010, giving borrowers a simplified right of termination, among other things.
When terminating or prematurely repaying a loan, however, some banks require a so-called prepayment penalty. This is to replace the interest that escapes the banks by the earlier replacement. Therefore, the longer the remaining term of the contract, the higher the compensation. However, the costs that banks may charge for early termination are limited by law. Specifically, a prepayment penalty may amount to a maximum of one percent of the balance. However, if the remaining term is shorter than twelve months, the prepayment penalty is limited to 0.5 per cent. But there are also credit institutions that waive a prepayment penalty.
A special feature is mortgage lending, because here rescheduling takes place in a different way. Construction loans can only be rescheduled with a notice period of six months. In case of premature termination of the contract, the banks may demand a prepayment penalty. However, this only applies if the building loan is terminated before the tenth year of fixed interest. After this deadline, there are no costs for rescheduling.
There are several situations in which rescheduling can save money and potentially improve the borrower’s creditworthiness . Especially periods of low interest rates should always be a reason to think about rescheduling. If current lending rates are significantly cheaper than interest rates on existing loan agreements, rescheduling is worthwhile in most cases. However, it depends on how long the loans to be repaid are still running and whether a prepayment penalty is due. In principle, a rescheduling should therefore always take into account all costs and not just the interest rates are compared. For loans that run only a few months, rescheduling is often not worthwhile.
In most cases, rescheduling almost pays off if several loans are paid in parallel and they can be combined into a single loan. By combining multiple loans, the creditworthiness of the borrower can be improved as an immediate effect. In addition, the monthly rate of the debt rescheduling loan is usually lower than the total of the installments of the old contracts. As a result of the improved credit rating, borrowers can already benefit from a lower interest rate when concluding the debt rescheduling loan.
For consumers who have to exhaust their discretionary credit every month to the last, a rescheduling can pay off in cash. With extremely high interest rates of 13 percent and more, which are calculated daily on the excess amount, disbursements are only worthwhile for the banks. For consumers, the emergency loans, which were originally intended only for the short-term bridging of financial bottlenecks, are often the trap from which they can no longer escape. The solution can be the conversion of the credit line into an installment loan. In this way, account holders can often save up to half of the interest. Another advantage is that the installment loan – unlike the credit line – is linked to a fixed payment plan and an early repayment is sought. The credit line can basically be used for an infinitely long time and this can be very expensive. After applying for the installment loan, it usually only takes a few days until the loan approval. A short time later, the money is credited to the account and the account balance is back in plus. You then pay back the loan at the agreed interest rate in monthly installments.
The application for a debt rescheduling loan is possible at any bank. Borrowers also do not need to complete a debt repayment loan to the same bank where they took out the loan (s) to be redeemed. Consumers have the opportunity to look around the market for the cheapest loan, to choose the best deal and to save as much money as possible with their rescheduling. Particularly when rescheduling mortgage lending, borrowers should seek bids from several other banks. Here they often get cheaper interest rates than with a prolongation of mortgage lending with the previous bank. In any case, borrowers should make a non-binding and free credit comparison before deciding on a bank. With it can be found in a few steps, the cheapest offers for rescheduling and in many cases also directly online. Of course you should, especially when it comes to medium- or long-term credit agreements, make sure that free special payments (and thus a premature termination) are possible. An alternative is to present the most favorable offer of the previous bank and give it the opportunity to make a better or at least a similar offer. Banks are reluctant to lose their customers, even if they are borrowers. At some point, every loan is repaid and customers who feel comfortable with the bank usually stay longer and may buy other financial products.
Once you have decided on an offer from another bank, you should inform your bank in writing that you want to replace your previous loan with a new loan. In addition, arrange a personal discussion with your bank adviser and discuss the replacement once again on site. When applying for a new loan, you should – if possible – state the purpose of the “debt restructuring”. In addition, the new bank requires a written power of attorney for the old loan.
Even when concluding a debt rescheduling loan, banks often provide their customers with a residual debt insurance, which they consider to be security in the event of an emergency. In fact, consumer advocates consider residual debt insurance obsolete as their benefits are far too low given the high cost. The cost of the insurance is usually added to the loan amount, thereby increasing the monthly installments.