Like pretty much everything in life, the medal of the current low interest rates has two sides. A rather annoying development for savers, a blessing for around 56% of German borrowers (as of 2015). Because low interest rates mean less total debt to the bank. Especially if you have already taken out a loan a long time ago, it is worth considering rescheduling the remaining loan.
The development of interest rates in recent years can ensure that not only the loan amount is sometimes drastically reduced, but also that the monthly charge is reduced. So you can save money on real estate financing, installment and overdraft facilities. It is important to compare the loan offers as part of a planned debt restructuring.
When debt restructuring is worthwhile
The debt rescheduling of a current loan is always worthwhile when the interest to be paid after the loan repayment is cheaper than before. Also, if you use more than one loan, perhaps even at different institutions, you can save a lot of money by retraining and merging your loans with the monthly payment. The higher the loan, the more worthwhile is the debt rescheduling financially.
Because the lower interest rates noticeably reduce the total debt, especially for large sums. This may even result in a lower monthly charge. However, should this result in a longer term, caution is advised. Because this can increase the total loan again. Even in the event of temporary financial constraints, such as during unemployment, debt restructuring can be a solution to reduce the monthly burden.
What to look for when rescheduling
Tempting offers abound. But often enough, the first glance is deceptive and hidden costs become apparent too late. Caution is advised here. One of the most important cost factors is the prepayment penalty, which the lending bank may be able to claim. In the case of rescheduling of framework and overdraft facilities, this is usually not necessary. Nevertheless, it is advisable to find out in advance whether it is due and if so, to what extent.
In addition, the interest rates should be checked carefully before the debt rescheduling. Advertising is often carried out with low debit interest, but the effective interest is important for the borrower. Another important aspect is time. In the case of loans or financing with fixed interest rates, rescheduling without horrendous additional costs is only possible after the fixed interest rate has ended.
An exception to this is construction finance, which, according to the German Civil Code, can be rescheduled free of charge even before the fixed interest period expires, provided that it has been serviced for 10 years. Apart from the right time, the processing time must also be taken into account. Debt restructuring is borrowing from another institution. The new bank also checks the creditworthiness and solvency if you want to redeem an older loan.
In summary, the following factors are particularly important to consider when rescheduling:
- Incidence and, if applicable, the amount of the prepayment penalty
- Date of approval of the current loan (key date: July 11, 2010)
- Date of debt restructuring
- Approval time by the new lender
- Amount of the APR
If the new loan offer results in a significantly improved monthly installment taking into account the points mentioned, rescheduling should be implemented in practice.