Furniture, cars, vacations, relocation – there are many reasons that cause consumers to borrow. German households serve on average between three and five smaller loans. The permanent overdraft, too high real estate lending rates or the combination of several small loans, are good reasons to deal with a refinancing. Due to the rescheduling, the company’s own financial position is not only clearer, but it can also save on credit costs.

the essentials in brief

  • A loan reminder saves in many cases interest costs but is often not suitable for debts less than 1,000 euros.
  • With the rescheduling loan, an existing loan or several existing loan agreements can be completely replaced, so that instead of many small single installments, only a large monthly installment has to be paid.
  • It is always necessary to determine the cost savings taking into account all incurred cost items such as prepayment penalty, other penalties, processing fees, and other costs.

What is a payday loan consolidation?

What is a debt restructuring?

Payday loan consolidation is the replacement of existing loans by taking out a new loan. You may solve The Problem with Payday Loans with payday loan consolidation. With the loan amount paid out, the existing loans are completely or partially replaced.

By rethinking a number of single small loans with a high effective interest rate into a large loan with a lower effective interest rate, costs can be saved. In addition, the overview of one’s own financial situation increases because the number of installments to be paid is reduced.

Debt credit: when is the change worthwhile?

Debt rescheduling always pays off when the cost of raising and continuing a new loan is lower than the cost of current loans or current loans. In this respect, it applies to borrowers to face the following cost items:

  • Old loan: current interest rate, rescheduling costs (prepayment penalty), total costs until the repayment of the loan
  • New loan: new interest rate and interest savings, possible processing fees, total costs until the repayment of the loan

The rescheduling is worthwhile if the interest savings until the end of the term are greater than the cost of early replacement of the old loan.

Special problem: Multiple loans cause multiple costs

If consumers are in debt due to multiple loans from different lenders, they will be required to pay multiple processing fees and ancillary costs for each loan. In addition, there are interest costs and repayments. If the loans are meaningfully summarized by merging them into a debt rescheduling loan, the refinancing can save interest and other borrowing costs.

Example of rescheduling

Example of rescheduling

A borrower must serve three loans each month for different purposes:

  1. Modernization loan for his property at the house bank (remaining debt € 20,000, effective interest rate 2.5 percent)
  2. Financing of the kitchen (residual debt € 16,000, effective interest rate of 6 percent)
  3. Financing of the living room furniture (remaining debt 4.000 Euro, effective interest 5.5 percent)

In total, his debts amount to 40,000 euros. As part of a loan debt restructuring, the debtor manages to obtain a loan at an interest rate of 2.8 percent. He decides to replace the financing for the kitchen and the furniture for a total of 20,000 euros with the rescheduling loan. He keeps the modernization loan running.

Instead of the three individual loans, only two loans remain after the rescheduling, which is to be serviced monthly. In addition to the savings that result from the lower interest rate, the debtor reduces the cost of credit account management and other ancillary costs.

When is the rescheduling not worthwhile?

The rescheduling of a loan is usually worthwhile in any case if the remaining debt is less than 1,000 euros and the term is less than twelve months. In such a case it will be very difficult to find a cheaper alternative. This is because banks set new minimum installment terms and minimum amounts for new installment loan installments.

In such a case, consumers can check the following options:

  • Are there enough savings to settle the remaining debt completely? Then it pays to determine the associated costs. If the bank does not require a prepayment penalty, the immediate repayment usually pays off, because the interest credit on the savings account is lower than the number of interest costs for the lender.
  • If the term of the existing loan is less than twelve months, the rescheduling of a loan with a longer term could make sense. This can be seen by the prospect of seeking multiple bids and comparing the cost of borrowing.

Special case rescheduling and mortgage lending

Consumers with a mortgage loan should, in times of low-interest rates, check whether debt rescheduling is eligible. A look back at the past shows that over the past 20 years, the average interest rate on ten-year loans has been around 4.7 percent. At the end of 2018, the effective interest rate for a construction loan is between 1.5 percent and 1.8 percent. For building borrowers, it means they can save a lot of money in the long term.

In general, every borrower should know that § 489 BGB grants a special right of termination for real estate financing. It is analogous in this paragraph that borrowers may fully or partially terminate ten years of borrowing on a fixed-rate real estate loan without being charged a prepayment penalty or other service charge. The financing bank has an obligation to release its clients from the contract within six months. This way, consumers with long-term loans can exit the contract prematurely and reschedule their debt.

Borrower with a real estate contract with a closing date older than 4.5 years

Borrowers who have signed their contract for about five years should look into the follow-up financing as soon as possible, keeping an eye on interest rates. It may well be worth taking on a forward loan today.

There are credit providers who grant a lead time of 60 months (= 5 years), some even offer a lead time of 66 months. In practice, this means that borrowers with a contract that is only four and a half years old can also check whether a debt rescheduling is worthwhile and therefore eligible.

Which rescheduling fits best?

There are various forms of debt restructuring. Often, these are the discretionary credit, the installment loan, and the real estate loan affected. In general, there are several reasons why consumers choose to reschedule. It makes sense to reschedule if one of the following situations applies:

  • The disposition credit on the checking account is used frequently and on a large scale.
  • The consumer has to serve several smaller loans.
  • The real estate loan expires or follow-up financing is within reach.
  • The construction loan should be rescheduled because of high-interest rates.

The following table provides an overview of the different forms of debt restructuring with their advantages and disadvantages.

rescheduling form advantages disadvantage
Debt rescheduling in Installment Loan, Loan Loan or Loan Loan
  • considerable interest cost savings
  • for smaller amounts no extensive credit check is necessary
  • an uncomplicated and transparent process
  • Plannable regular installment
Financially inexperienced consumers can tentieren, despite rescheduling the current account to coat. There is a danger of getting into the debt trap permanently. The appropriate countermeasure is to terminate the credit line with the bank
Merging multiple loans into one loan
  • interest savings
  • Saving multiple invoiced credit costs
  • improved overview of payment obligations
Rescheduling of expensive real estate financing
  • significant interest savings
  • Forward loans can be used to secure favorable interest rates for follow-up financing for up to five years in advance.
Possibly prepayment penalty is required

This is how a debt restructuring works

This is how a debt restructuring works

If borrowers decide to reschedule, the following steps are a good idea:

  1. Check and record the status quo
    Debtors summarize the key data of their loans in an overview. Important criteria are the annual percentage rate of interest, the remaining maturity, the amount of the monthly repayment installment and the amount of the residual debt. Important: If you do not have this data, contact the responsible lending bank.
  2. Determine the prepayment penalty and other costs for early termination
    Not every loan is subject to prepayment penalties. References to find borrowers in the loan agreement. In the case of a loan up to a maximum of EUR 75,000, which was closed before the cut-off date of 11 June 2010 (the entry into force of the European Consumer Credit Directive), a three-month notice period applies. In addition, the early termination of the loan may cost a maximum of one percent of the outstanding balance. If something else is in the contract, that is not legal and therefore voidable.
  3. Calculating the savings potential
    The available data can now be used to calculate the potential savings by comparing the total cost of the old and new potential credits. If it is not possible to calculate the savings alone, it is advisable to ask an expert for advice.
  4. Rescheduling on the way
    If the debt restructuring pays off, the new contract can be concluded. Important: The contract period of the new contract must fit the contract period of the old contract. For example, borrowers can use the loan repayment loan to replace the old contract (s) without temporarily experiencing financial difficulties. The date for the first installment of the new loan should be after payment of the last installment of the old contract or contracts so that there is no double charge.

Tip: With a good deal on a debt repayment loan, consumers can go to their house bank and submit it there. Some banks get in and offer similarly good conditions. If the house bank does not make a similar offer, the switch to cheaper financing is economically the best option.

Complete rescheduling online – this is how it works

  1. The process starts quite simply by entering the desired loan amount along with the term and purpose in the comparison calculator. Interested parties enter their bank details and personal data such as name and address.
  2. Now borrowers receive a concrete, but still non-binding offer.
  3. In the course of the further process, the identification by Video call arrives. Credit seekers must have their identity card ready.
  4. The conclusion of the contract is also online. Borrowers sign electronically. In many cases, the desired amount will be transferred on the same day.

To complete the rescheduling online, borrowers must be at least 18 years old. The main residence must be in Germany. In addition, a German bank account with regular cash receipts is required. The credit rating is also being checked: data is requested from the SCHUFA. Depending on the amount of the loan, additional financial framework data is requested from the potential new lender.

Conclusion: Consumers with debts should observe interest rates regularly

Overdrawing the checking account is a common reason that causes consumers to think about rescheduling. However, long-term loans should also be reviewed in view of the potential savings in interest rates. The larger the residual debt and the higher the valid interest rate compared to the debt rescheduling loan, the higher the potential savings amount. Any consumer who lends over € 1,000 or regularly overdraws his current account should follow the current trend in interest rates in order, if appropriate, to restructure debt at the appropriate time.