Loans can affect your own financial situation in different ways. Loans that were borrowed a long time ago may have overly high interest rates that are out of date, or simply too many individual loans. Debt restructuring can be useful to reduce legacy issues. Below you will find out what advantages it can have to repay a loan and what you should consider.
What is a debt rescheduling loan?
Basically, it is an ordinary installment loan. This serves the purpose of repaying or increasing other loans. Banks and other providers offer appropriate uses for this when borrowing.
- In any case, you should make sure that you specify the debt rescheduling as the purpose. With free use, you have to take care that the existing loans are repaid.
A bank is therefore required to provide more information on a debt rescheduling loan than on an ordinary loan. Basically, you have to provide the following information and meet the requirements:
- Minimum age of 18 years
- You need an adequate credit rating
- Regular monthly income and proof of salary for the past three months
- Alternatively, the last pension notification or, in the case of self-employment, the last income tax notification
- Full bank statements of the past months
- No negative characteristics in the Credit Bureau
In addition to these basic requirements, the bank needs the data on the existing loans when rescheduling. This includes the remaining amounts of the individual loans, the lenders and, in most cases, a power of attorney, provided that the bank takes over the bill entirely for you.
If all the required data is available, you can take out a new loan that replaces your old loans . As a result, you benefit above all from lower interest rates. You can also get a better overview of your financial situation by combining several loans in one.
How does debt restructuring work?
In the event of debt restructuring, the contract for an old loan is terminated and the outstanding balance is financed by a new loan. Your existing debts will initially only be shifted from one lender to another. A well thought out preliminary calculation now decides whether this can result in an advantage for you.
- You should never reschedule a loan!
- Calculate all associated costs carefully in advance and obtain various offers for comparison.
- If necessary, contact a specialist lawyer for capital law or consumer protection to clarify all legal questions and make no mistakes.
If you have found a suitable offer, pass on all the necessary documents to the relevant provider. This will usually take care that your existing loan contracts are properly terminated and replaced.
What you absolutely have to consider
In addition to the outstanding balance of the old loan, a possible prepayment penalty for rescheduling has to be taken into account. Banks are profit-oriented companies and can demand compensation for the loss of interest income if the entire remaining amount is repaid early. The amount of a prepayment penalty is subject to legal provisions and is defined under § 502 BGB:
- If the remaining term is more than one year, 1% of the amount repaid early is due.
- If the remaining term is less than one year, banks may only charge 0.5% of the outstanding amount.
The prepayment penalty must be included in the calculation for a debt rescheduling loan, since this amount will have to be co-financed later. So you must not only pay attention to the outstanding loan amount that you want to save, but must also include these additional costs. Nevertheless, it is not wrong in many cases to have a loan rescheduled, especially in phases of low interest rates you can make enormous savings.
Also pay attention to other costs that may be incurred due to additional advice. It is best to get information in advance about what the corresponding information would cost in your case from a specialist lawyer, a tax advisor or the consumer advice center. You should also take these costs into account when rescheduling a debt, provided you need the appropriate advice. In any case, it is not wrong to obtain competent specialist information so that you do not have to fear unexpected surprises.
Can a prepayment penalty no longer apply?
If you want to reschedule a loan from the same bank, for example to top it up, they sometimes waive the prepayment penalty. The banks do this out of goodwill in order to maintain long-term customer loyalty. If you just want to top up an existing loan because your credit rating has improved, it is advisable to talk to the lender. Often they come to you with such a concern.
Otherwise, from a legal point of view, there are still situations in which prepayment penalty in your favor can be omitted:
- After 10 years, a loan agreement no longer has a fixed interest rate. If you cancel the loan, the lender is not entitled to a prepayment penalty. You also have a period of 6 months from which the interest rate can be renegotiated.
- If the cancellation policy in a credit contract is incorrect, the lender also has no right to claim early repayment penalty if you cancel early. If in doubt, consult a specialist lawyer for capital law if you are not sure of the exact legal situation.
- In some cases, prepayment penalties can be tax deducted as advertising costs. If possible, contact a tax advisor to clarify whether this applies to you.
When does a debt rescheduling loan make sense?
Basically, various criteria have an impact on whether or not debt restructuring is an option:
- What is the remaining debt of the existing loan, so how much money do you have to pay back to the bank?
- How long is the remaining term?
- What is the interest rate on your old loan?
- How much is a prepayment penalty?
- What monthly installments can and do you want to pay in the future?
The amount of the new loan rate should be carefully considered. If your financial situation has improved significantly in recent times, you can consider applying the debt rescheduling loan at a higher rate and with a shorter term. This way you benefit from interest savings and can get rid of the debt burden faster. For example, a raise could be a good time to think about getting a loan into debt.
You should also keep an eye on the development of interest rates. If you are considering rescheduling, you should allow yourself some time in advance to observe the current changes in the interest rate market. In this way you can adjust a suitable time and get the best possible savings from debt restructuring.