Smaller or larger installment loans are used by consumers to bridge financial bottlenecks or finance larger purchases. This can be a new car or a washing machine, to finance the study for a child or for mortgage lending. In this way, smaller loans can accumulate, which together weigh heavily on the household monthly. For larger loans, such as real estate, it sometimes gets annoying after a while, when the lending rates are significantly cheaper than at the time of the loan agreement, as is currently the case thanks to the low interest rates. In both cases, rescheduling is the solution.
Debt restructuring scenarios:
- Bundling of several small loans and debt consolidation
- Replacement of a disposition credit
- Reinvestment of larger loans at lower interest rates
- Adjustment of the term
- Change of the bank
1. Loans that can be rescheduled
1.1 Conventional installment loans
Installment loans are a common form of consumer credit and are accepted for larger purchases, such as installments when buying products, in the form of car loans or for mortgage lending. If the termination agreement in the loan agreement allows installment loans can be replaced and also merged.
1.2 Disposition credit
Disposition loans allow overdrawing the current account up to a certain limit. Although discretionary loans can be repaid flexibly, that is not with fixed monthly installments, interest rates on these loans are very high, usually more than 10%. At first glance, the obligation to pay monthly installments in the debt repayment loan may be a disadvantage, but the borrower saves in the medium term due to more favorable interest rates and terms. Disbursements can – this is a plus – be replaced without any prepayment penalty.
1.3 Mortgage Loans
For mortgage loans, there are usually fixed interest rates over a credit period of ten to twenty years and often long. The compensation in the case of early replacement can be quite high here, so it is worth the thorough calculation of whether the debt rescheduling pays off.
2. How to reschedule
A debt rescheduling is simply to borrow a new loan to fully repay existing loans. After that, the borrower only has to repay a new loan in monthly installments instead of paying off several smaller loans in separate items as before. Disposition loans that are granted through the current account can also be reclassified. The flexible “credit line” enjoys great popularity, only later does the borrower notice that interest rates of 10% pa or even more are due. Here as well, the interest burden is reduced to one third or one quarter of the previous level due to debt rescheduling loans. If the rescheduling loan is reputable and well calculated, consumers can significantly reduce the monthly amount to pay and often even reduce the total amount of the debt. On the one hand, the debtor can at best benefit from lower interest rates, and on the other, the fees that the individual providers of individual small loans raise for processing or account management are eliminated. For some borrowers, the rescheduling also involves a change in the financial services provider, which can also bring with it more favorable terms and savings.
However, rescheduling loans are dependent on the respective provider in terms of costs and terms. Therefore, a comparison of the possible options for consumers is essential to really find the best solution for your own debt restructuring. It should also be noted that earmarked loans, such as car loans, are often excluded from rescheduling!
2.1 Is the rescheduling worth it?
- What is the difference in interest rates between old and new loans?
- Which redemption amount, the so-called prepayment penalty, demands the bank?
3. Notice periods and prepayment penalty for rescheduling loans
Anyone who has decided to reschedule, should know that in individual cases notice periods must be observed. These are dependent on the interest rate. Loans at variable interest rates have a notice period of three months. Fixed-interest loans can be canceled half a year before the end of the fixed interest period, but always after 10 years. However, a rescheduling even before the expiration of this period is possible. In this case, the so-called prepayment penalty is due for fixed interest rates. This payment compensates the borrower for the financial loss of the bank, which at the time of the loan agreement calculated and fixed its interest rates. A termination therefore causes the bank so-called refinancing damage, which is redirected to the borrower. This also applies to the margin loss – namely the reduction of the bank’s profit from the prematurely terminated lending business.
The amount of the compensation payment depends of course on the loan amount and also on the provider. In the best case, the borrower has already informed himself about the amount of the VFE before concluding the loan agreement. Regardless of the amount of the early repayment penalty, the rescheduling can nevertheless be expected when the interest rates are currently very low – in this case, the borrower still saves money.
4. Prepayment Penalty: an overview of the legal conditions
As already mentioned, the amount of the prepayment penalty depends on the provider’s terms and the amount of the loan. Nevertheless, banks can not set this compensation at their own discretion. The legislator provides:
- If a installment loan is taken before June 11, 2010, only the agreed terms of the loan agreement will apply.
- A installment loan made after the date stated above is subject to the provisions that, for a residual term of more than one year, Bank is entitled to a prepayment penalty that does not exceed 1% of the remaining debt.
- If the remaining term of the loan is less than one year, only a maximum of 0.5% of the remaining debt can be claimed.
- Although the legislator does not regulate the maximum amount of the prepayment penalty for home loan financing, this only becomes due in the event of a termination during the first ten years of the repayment term – after which the loan can be redeemed with a six-month notice period without VFE.
- For loans without fixed interest, no prepayment penalty is payable.
5. Debt rescheduling: in three steps to the goal
5.1 Review the existing loan arrangements
The existing liabilities are the starting point for answering the question whether a debt rescheduling loan is worthwhile. Before applying for a debt rescheduling loan, the borrower should have an overview of their own financial situation, with the following information:
- Information about the exact remaining debt (s), preferably in writing and directly from the lender, including the exact monthly repayment installment and the agreed effective interest rate.
- The detailed list of fees incurred during the remaining term (s), for example for account management and / or processing.
- The possible maturity and amount of a prepayment penalty
5.2 Comparison of conditions and costs
If complete information about existing loans is available, it is up to the calculation of the costs and the comparison with current, cheaper offers. Online credit calculator and provider comparison calculator are available for this purpose. In the search mask you enter the remaining debt and the remaining term and the purpose of the rescheduling.
The results obtained can be further modified – so you can lower the monthly rate by extending the term, but should keep in mind that with a longer term, the interest rates rise.
If you want to compare providers correctly, you should always use the APR, not the debit interest, because this is the only way to calculate the actual cost of the loan taken correctly.
When comparing the existing loan with a new offer, the remaining interest burden of the old loan can be compared with the future interest on the new installment loan. Here the difference indicates the possible savings. Do not forget to deduct possible compensation payments to the bank!
5.3 Pick up a new installment loan
If the appropriate provider for a meaningful debt restructuring found, it is time to talk to the previous lender. The first step is the notification of the exact planned termination date, on the basis of which the bank can calculate both the residual debt and the VFE. Anyone who has only one loan to pay off and is largely satisfied with his bank can now consider whether he wants to negotiate with the bank on a reduction in interest on the remaining debt. It is not uncommon for the bank to be accommodating, but not every lender agrees to negotiate – in which case the new loan can be finalized.
The new lender will initially insist on the credit check. Therefore, it is essential to specify the rescheduling as the main reason for the loan application. So knows the offerer, if he the Private credit information overtakes, that no additional loan is to be taken up, but existing liabilities are paid off. A significant difference in the loan approval!
If the debt repayment loan is granted, all that remains to be done is to complete and sign the loan agreement, together with the documents requested by the lender. Here, the same conditions apply as with all installment loans, and a signed repurchase authorization is needed to replace the old loan at the previous bank.
The product overview shows that everyone has the right credit
6. Providers of debt rescheduling and credit intermediaries
In addition to established banks, direct banks in particular offer debt rescheduling loans. Since the online banks offer their customers a 24-hour service, the processing of inquiries and applications is much faster than with branch banks. Moreover, the entire process can be conveniently run through the home computer. At a branch bank, although the borrower will find personal customer service, he will have to accept the usual opening hours and restrictions through weekends, and can expect the cost of the loan to be slightly above the online banking offerings.
In addition to reputable banks regulated by the Federal Financial Supervisory Authority, credit intermediaries also offer their services. Sometimes, though not always, cheap deals hide loans made through foreign banks.
7. Debt rescheduling without credit check
As with “regular” loans, debt rescheduling loans are granted only after the applicant’s creditworthiness has been verified. As a rule, the lender asks Private credit for information. For borrowers who already have a negative Private credit score, this is a problem. As mentioned above, the loan application should explicitly refer to the intention to reschedule, in order to circumvent this obstacle, especially when it comes to debt relief.
However, anyone looking for ” Private creditfreien ” loans will also find what they are looking for. Providers promoting loans without a Private credit query usually work with foreign banks. Here, the terms and licensing and regulation of the lending bank should be carefully examined. In addition, it can be assumed that a financial service provider that does not require information on the payment behavior of the customer, this risk can be rewarded with higher interest rates and therefore is not a good choice for debt restructuring.
8. The application for the debt rescheduling loan
Particularly uncomplicated is the application for a new installment loan for debt restructuring at an online bank. The borrower can initially make a non-binding, free request to the provider of his choice. In addition the indication of the personal data is necessary, also a proof of the income further proof to the financial situation is demanded. The completion of the information and the submission of the form is completed in less than half an hour, and a direct bank answers usually immediately by offering the interested party a personal loan offer. For this purpose, the bank can make a Private credit request, which is neutral and does not affect the score.
Also, the dispatch of the contract documents and the legitimacy can easily be done digitally. For the verification of personal information, the borrower can use the VideoIdent process and verify his identity in a video call using a badge. Required are only a camera with good resolution and a stable Internet connection. Otherwise, the legitimization can take place at the counter of a branch of Deutsche Post.
8.1 Debt Relief Agents
Especially when a larger amount of current small loans is to be summarized, borrowers lose track. Therefore, it is not surprising that debt rescheduling agents offer their professional help here. Above all, the support of the rescheduling professional helps to gain an overview of the existing liabilities and to provide the necessary documents for rescheduling. However, borrowers should keep in mind that the intermediary’s services will also be billed. The seriousness of the rescheduling professional should also be examined.
9. How long does the debt restructuring process take?
Here can make no binding statement, because the settlement depends on the initial situation. If many different loans are to be bundled and the borrower can not immediately provide the necessary documents, the entire process can take up to a month or more. On the other hand, if only an existing loan is rescheduled, for example, to take advantage of lower interest rates, the rescheduling can be completed quickly.
10. Conclusion on the debt rescheduling loan
For consumers who want to bundle and repay various smaller installment loans, debt rescheduling is an excellent way to simplify the oversight of their own debt, save on processing fees, and possibly benefit from lower interest rates. Also, the duration of the debt rescheduling loan and the amount of monthly installments can be adjusted to the individual financial situation.
Anyone who has taken advantage of a larger loan and wants to benefit from the current low base rates should also restructure to avoid paying more interest than necessary. Even the costly MRP loan can be redeemed via a rescheduling.
Although debt rescheduling does not eliminate the existing debt, it improves the conditions for the borrower. Since repayment of existing loans may be subject to prepayment penalties on a case-by-case basis, a comparison before rescheduling requires a detailed calculation of not only the residual amount and remaining time and interest rate differential, but also the amount of the compensation payment to determine whether the debt rescheduling loan is worthwhile. Loan calculator and provider comparisons online make it easier for the borrower to make the calculation.