What is a debt restructuring?
A debt restructuring is a kind of follow-up financing. In this case, you finance your loan with a new bank after the interest rate has expired. See http://hypnosemontreal.net/bankruptcy-facts-and-faqs/ for further editorial
When you repay, you replace an old loan with a new loan. Ideally, you will get the new loan on more favorable terms – especially in terms of interest rates – and thus save in proportion to previously available cash.
The interest rate on which you have completed your installment loan some time ago can usually be optimized. The lower the interest rate, the less you pay back to the bank. Lending rates have fallen in recent years. Take advantage of this by reposting your old loan and replacing it with a new loan.
You usually conclude a loan with a so-called debit interest commitment. Here you will be granted a certain interest rate for a fixed period of time, for example 15 years. This is fixed and is not affected by interest rate fluctuations on the market. If interest rates rise in the market, you still finance your loan at the lower interest rate stipulated in the contract. However, if interest rates fall, you finance your loan more than necessary. A fixed interest rate can therefore protect you against rising interest rates, but also put a financial burden on you when interest rates are falling.
If the interest rates are currently lower than when you made your loan, you should think about rescheduling. Because the money you save by rescheduling, you can certainly use better.
When can I repost a loan?
Basically, you have the right to repay a installment loan at any time. So you can repost your loan whenever you want. This was regulated in the EU Consumer Credit Directive. The Directive applies to all credit agreements concluded from 11 June 2010.
- Can I repost a installment loan before expiry of the fixed interest period?
If you are considering a debt rescheduling loan, you should first find out how long the borrowing rate of your loan is still running. Because the larger the period between fixed interest rates and refinancing, the more expensive the loan can become.
If you cancel your loan before expiry of the fixed interest period, often a compensation payment is made, which is based on the amount of the remaining debt. If your fixed interest rate is regular, you can repost the loan without having to make a compensation payment.
So the best time to reschedule depends essentially on how long your debit interest is still running and, of course, how low the interest rates on the market are.
A rule of thumb is that if the new loan you want to repatriate is already 0.2% cheaper than the old one, rescheduling in most cases is worth it. This is because the interest savings exceed possible switching costs.
Presumably, your current bank will make you an offer shortly before expiry of your debit interest. A comparison of several providers can show you whether the offer of your bank is good or rather too expensive. With our installment credit calculator, you can make a first, non-binding overview of the conditions for your refinancing.
Our example calculation clearly shows how the height of themselves APR affects the amount of the monthly rate and the total amount of the payments. With the expensive loan, the borrower pays almost 500 euros more interest than the one who has secured a low interest rate.
|conditions||Old credit||New loan|
|remaining debt||10,000 €||10,000 €|
|Contract period||48 months||48 months|
|Monthly Rate||234.12 euros||223,32 €|
|Total payments||11,237.87 €||10,719.16 €|
|of which interest||€ 1,237.87||719,16 €|
Table: Savings calculation
When is not debt repayment worthwhile?
The savings you can make by rescheduling are a big plus and quite tempting. However, debt repayment is not necessarily suitable for all loans and is not always worthwhile.
If your remaining debt and the possible prepayment penalty together amount to less than 1,000 euros, it is usually not worthwhile to repost your loan. First, because the savings from the debt repayment with such small amounts is almost vanishingly small. On the other hand, banks are reluctant to grant loans on such a small scale anyway. Because banks hardly make money on these very small loans.
Maybe you also saved some money that you could use to pay for this rather small residual debt?
FAQs – Frequently Asked Questions
- Can I repost several loans?
- Repaying Installment Loan: What are the requirements?
All debt restructuring FAQs
Which loans can I repost?
In principle, you can actually repost any loan and benefit from the lower interest rates on the new offer. However, one or the other type of loan has its own particularities and conditions surrounding the termination and rescheduling.
In addition, there are two special cases where debt repayment is particularly useful: If you have slipped deep into the checking account of your checking account and your mortgage lending comes to an end.
More than every third German uses his disposition credit, in short Dispo. He is the supposedly comfortable solution if the account empties at the end of the month. But this convenience makes banks pay dearly. The interest on the discretionary credit can be up to 13 percent.
So ask yourself: how long will you still need the dispo? Is it just a short-term bottleneck, from which you come out with the next payroll, or are you stuck in the Dispo? In the latter case, it would be very useful if you convert the amount to a regular loan. This significantly reduces interest costs, as you will always improve from a double-digit to a single-digit debit interest.
When you have cleared your postage, avoid taking another overdraw on your account. Because otherwise you pay then in addition to the loan installment to replace the Dispos synonymous nor Dispo interest rates and may get into a debt spiral, which charges you several times.
Reposting mortgage lending
The rescheduling of mortgage lending appears many property owners lately particularly attractive: Finally, the recent interest rates were recently long in descent, because everyone would like to exchange the expensive building loan for a cheaper. Unfortunately, that is not quite as easy as the Dispo. After all, mortgage lending is also based on loan agreements that are not easy to repost.
Within the self-selected debit interest payment, this is virtually impossible or only associated with the payment of a prepayment penalty, which we will discuss in more detail later. There is an exception here, however: If your mortgage lending runs for more than ten years, you can cancel at any time, without compensation, with a period of notice of six months. This has been regulated by the legislature in § 489 of the Civil Code (BGB).
At first sight, this seems to make it difficult to repost mortgage lending. But pay close attention: you can save a lot of money by a cheap follow-up financing, and in this way, fees and additional costs usually amortize after a short time.
What does a debt restructuring cost?
If your credit expires regularly or if no compensation or compensation payments have been agreed in the loan agreement, you can usually repost it free of charge. For example, the triggering of a disposition credit is primarily free and advisable because of the high interest rates.
If the debit interest on your loan has not yet expired, banks may charge a prepayment penalty. This serves the bank as compensation for the lost interest income. Whether banks demand a prepayment penalty is up to them.
With the adoption of the EU Consumer Credit Directive, the amount of compensation for installment loans, which were concluded from 11 June 2010, is regulated by law. It may not exceed one percent of the remaining debt if your loan lasts for more than 12 months or 0.5 percent if it is less than 12 months.
|remaining debt||Remaining time||prepayment penalty||amount|
|5,000 €||18 months||1 %||50 €|
|5,000 €||6 months||0.5%||25 €|
Example calculation prepayment penalty installment loan
In our example calculation you can see that the compensation payment of 5,000 Euro remaining debt is rather small. But it depends on the amount of the remaining debt that you still have to settle.
The amount of the prepayment penalty for mortgage lending, however, is not regulated. However, it must not be higher than the actual interest lost through early termination or redemption. Since mortgage lending is a high credit balance and usually also a high residual debt liability, the compensation can quickly amount to several thousand euros.
Notary and land register costs
In addition to potential compensation costs, there is still a cost for a notary public and the registration of the land register when repurposing a mortgage. Due to the high loan sums mortgage lending is secured by the land register and in the case of rescheduling the new bank must be entered in the land register, which causes costs.
If you apply for a rescheduling with a new bank, it may also be that the latter bears the costs of notary and land register in order to win you as a new customer. It is worth asking. How high these fees are, shows you our land registry.
Until a few years ago, it was common for banks, for example, to charge processing fees. However, this was banned in 2014 by the Federal Court. Such costs must not be incurred in the context of debt restructuring.
Whether a debt rescheduling incurs costs depends on both the nature of your loan and the interest rate commitment and is contractually regulated and recorded. A look at the loan agreements or a phone call with your bank will give you clarity.
What happens with the debt repayment with the residual debt insurance?
If you have taken out a residual debt insurance for your current loan, you also have to cancel this insurance in case of a debt repayment. It can take place by means of a special right of termination without notice, since the purpose of the loan is omitted. Transferring the policy to the new loan is not possible. If you also want to take out a residual debt insurance for the new loan, which will cover you and your family in case of emergency, you will also need to take out a new insurance with the new bank.
However, you should consider the conclusion of a debt insurance in the course of rescheduling. On the one hand, other forms of insurance, such as life insurance or disability insurance, sometimes cover cases such as death of the borrower or default on unemployment. On the other hand, residual debt insurance is expensive and the brokerage premium earns interest. This can also quickly make the favorable conditions of a debt rescheduling loan more expensive than necessary.
Many loans do not even have to be covered by a residual debt insurance. For smaller loans, a regulated, secure income is sufficient as a hedge. A residual debt insurance is worthwhile only if the loan amount is very high – such as a mortgage lending. Then it serves as additional security against payment losses. Whether a residual debt insurance in your specific case really makes sense or not, our experts for installment loan like to determine for you.
Advantages and disadvantages of rescheduling
We have already mentioned the biggest advantage in terms of debt restructuring: lower interest rates save you a larger amount of interest costs over the years. But you can also enjoy other benefits that make the reposting of your loans also a meaningful, worthwhile affair.
Benefits of debt restructuring
- Reduce Financial Burdens: You lower your monthly payments and continue to pay at the same rate as before. This gives you more financial freedom with the new loan because you no longer have to pay that much.
- Faster eradication at the same rate: you leave the monthly rate at its current level, but repay more. Background: Your monthly installment consists partly of interest payments and partly of repayments. Due to the lower borrowing rate, the interest component has fallen within the rate. You now have more scope for the eradication, so it increases. In other words, even though you have the same monthly installment on the new loan, you can pay more and become debt free faster.
- Enjoy long interest rate fixation: Depending on how high the residual debt of your loan is, you can secure the currently low interest rates for a long time by reposting. If interest rates rise in the market, you will continue to pay on favorable terms.
- Repurposing Multiple Loans Simultaneously: When you repost one or more loans, they bring more clarity to your finances. Because you can directly combine several existing loans into a single one. This can for example be a car loan, which you have previously concluded at a dealer bank at lower interest rates, a syndicated loan or furniture financing. By combining, you pay from now on only one monthly installment to a provider. At the same time, you not only improve the conditions, but also your credit rating: the fewer credits registered in your name at private credit, the better your private credit score.
Disadvantages of debt restructuring
- Effort: A Disadvantage in Credit restructure is the effort you have through the process. You have to study your contract documents and get offers. However, this expenditure of interest savings is usually worthwhile and in our experience, the effort for debt restructuring is limited.
- Credit check: If you want to repay a loan, the bank will again conduct a credit check. So you’re being asked how solvent you are and whether you’re eligible for a new loan.
- Costs: As mentioned above, depending on the contract and type of loan in progress, you may be charged. Check beforehand what the costs are in your case and calculate whether it is worthwhile to re-debit these costs. But among us: in most cases she does that!
As you can see from the mentioned advantages and disadvantages: It is important to weigh up the amount of the debt. Although you have to accept the prepayment penalty, normally you can recoup those costs quickly with the better interest rate on the new offer.
- Save by low interest rate
- Less monthly burden or faster repayment of remaining debt
- Long interest rate lock ensures favorable interest rates
- When rescheduling multiple loans simultaneously: more financial overview
- Effort through comparison of offers
- credit check
- Possibly. Payment of a prepayment penalty
Help is approaching: How does redeeming with Dr. Zed Big
Experience shows that debt repayment is a good way to get a financial overview and to save interest and money. The cost of rescheduling is limited, but the impact on your wallet can be seen. How to repay your loan in five steps, we have summarized for you.
You have the choice: Get advice on rescheduling or apply for specific offers to repay your old loan. Simply call our financial specialists for free at (0800) 6 64 93 64 or (0451) 14 08 33 34, use our online contact form or fill out an online application directly.
We’ll get back to you within 24 hours and provide you with a tailor-made loan proposal.
If you would like to accept our proposal, please send it to us signed and accompanied by the required documents.
We will then forward your full application to the appropriate funding partner for review.
You receive your desired credit.
First probe situation, then redeeming
Regardless of what you want to repatriate – the installment loan, furniture financing, mortgage lending or the Dispo – first of all it means: get an overview. Let us help you explore the situation with our installment loan specialists.
Take shortcut on the way to debt repayment
We will save you the way from bank to bank: Our local consultants present suitable financing solutions from a large number of well-known banks and calculate directly for you how much you can save by switching. Simply ask for current loan offers from us and receive feedback within 24 hours.
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