What does “debt rescheduling” mean?
With a debt rescheduling, you replace an existing loan with a new one. If the new loan has lower interest rates than the current one, you pay less borrowing costs. Depending on the amount of the loan, you can save several hundred dollars. This process is also called redeeming credit. However, the old bank may charge you a penalty fee as compensation for lost income, the prepayment penalty. However, it may not exceed 1% of the remaining debt. You can also reschedule various existing loans at the same time and combine them into a single debt rescheduling loan.
Can I reschedule any loan?
There are different types of loans, which are tied to different terms and terms due to the purpose.
- A classic installment loan or an instant loan that is not earmarked can be easily rescheduled. It doesn’t matter whether you took out the loan online or in a bank branch.
- This is not easily possible with car financing. Because in many cases it is not you who have the vehicle registration document, but the bank. And so the bank decides what can happen to the car.
- Debt rescheduling is highly worthwhile because an overdraft facility is one of the most expensive loans. Therefore, you can save a great deal on the debt rescheduling of the overdraft facility.
- Different rules apply to the rescheduling of real estate financing than to installment loans.
When is a debt rescheduling worthwhile?
Are you considering taking out a loan for refinancing? There are several good reasons why a loan can be worthwhile for a debt restructuring:
- You want to benefit from the currently low interest rates. The key interest rate is at a very low level due to the financial policy of the Fine Bank. Hence the interest on loans in the basement.
- You want to combine several existing loans into one. If you only have to pay off a debt rescheduling loan, you have a better overview of your monthly expenses than for payment obligations for three or four loans.
- You want to redeem your overdraft facility. If you have been in the negative with your overdraft facility for a long time, then you pay a lot of money for overdraft interest. At some banks even up to 13%. An installment loan is significantly cheaper.
- You want to be debt free faster. Given the currently favorable interest rate conditions, you can combine one or more expensive old loans into a new one. Under certain conditions, it is possible to make the term of the new loan shorter than it was before.
- You want greater financial leeway through lower monthly installments for the debt rescheduling loan. This is possible if you agree on a longer term for the debt rescheduling. This reduces the credit rates and you have more money left each month.
When does a debt rescheduling loan make sense?
The goal of a debt restructuring is saving. In order to find out whether you would actually end up paying less in your specific case, we recommend a precise comparison between the existing loan and the new loan. Unfortunately, you have to make this effort to make sure that it is reasonable to reschedule the loan and that you achieve your savings goal.
Debt credit – how it works
If you are asking yourself: “Debt rescheduling – how does it work?”, It is best to proceed step by step:
- Analysis of the existing loan
- Find a cheaper loan
- Make a non-binding loan request
- Sign and send the loan agreement
Step 1: Analysis of the existing loan
The main data of the old loan is the current remaining debt, the remaining term and the interest rate at which the loan is paid off. You can find this information in the contract documents that you received from the bank when you took out the loan. If you have misplaced the documents or are unable to find your way through the long documents, you can also ask your bank for the information.
Calculation example: Calculate the loan costs of the old loan
You took out a loan of $ 15,000 3 years ago with an effective annual interest rate of 5.5%. The monthly installments for a period of 5 years are just under $ 286. This results in the following data for your old loan based on the contract documents:
- Current residual debt: $ 6,500
- remaining term: 2 years
- APR: 5.5%
- Credit costs up to the end of the term: $ 379.74
Step 2: Find a cheaper loan
Now look for a loan that has better terms. It is particularly practical to use an installment loan comparison online. There you first enter the required loan amount. Based on the example above, this is $ 6,600. This amount is rounded up, it is made up of the remaining debt and the possible prepayment penalty.
Enter “Debt restructuring” as the purpose. The best offer is an effective interest rate of 3.45% with monthly installments of $ 285 (source :vergleich.de, installment loan comparison, as of March 2020). The total loan cost for this debt rescheduling loan is $ 236. This makes it around $ 144 cheaper than the existing loan.
Attention: At this point in the debt restructuring check, the decision for or against a debt restructuring is made. If you come to the conclusion that the refinancing will save you money, then you should reschedule the loan. There are only two steps until you have the loan for the debt rescheduling.
Step 3: Make a loan request and check the offer
With a free and non-binding loan request, you can request a written offer from the bank of your choice. To do this, you have to provide some information about your financial situation. This request has no impact on your Credit Bureau score. Credit Bureau will only find out about your request if you have signed a loan agreement and the bank has checked your creditworthiness. If you have the written offer, please check all the details again in peace.
Step 4: Sign and send in the debt rescheduling contract
Sign the loan agreement and send it to the bank along with all other necessary documents. A few days later you will receive a confirmation that you have received a loan for the debt rescheduling. Since the new lender usually offers a loan exchange service, he contacts your old bank and takes care of all the pending formalities. To do this, grant the new bank a power of attorney. This gives you the authorization to replace the existing loan with the old bank. The same applies if you reschedule several old loans at the same time.
This is how much you save through debt restructuring
The amount of your savings depends on several things such as the loan amount, the term and the current interest. It is therefore not possible to make a general statement about the savings options. We use three sample calculations to show you how high the savings can be. We use the two-thirds interest rate to indicate the conditions of the best offer. The two-thirds interest rate describes the percentage that two thirds of customers really receive.
Example 1: Debt restructuring for a loan of over $ 11,000
The first example describes a loan of $ 20,000 that was taken out 3 years ago with a term of 6 years. The effective interest rate is 5.2%. If you want to reschedule this loan now, then there is a remaining debt of $ 10,800. There is a cheap debt rescheduling loan for less than 3% effective interest. If you paid it off after 3 years, you can look forward to a saving of around $ 364.
Comparison of the cost of an old loan with a debt rescheduling loan of over $ 11,000
|Old credit||Debt rescheduling loan|
|amount||Residual debt $ 10,758.93||Loan amount $ 11,000|
|effective interest rate||5.2%||2.87%|
|running time||another 36 months||36 months|
|Monthly rate||$ 322.84||$ 313.46|
|Credit costs (interest + fees)||$ 863.37||$ 478.17|
The savings from the debt rescheduling amount to $ 385.20.
Example 2: Debt over $ 5,500
In the second example, a loan of $ 10,000 is rescheduled at an interest rate of 5.5%. The term of the old loan is 6 years, half of the period has expired. Over $ 5,500, which corresponds to the remaining debt, a loan for the debt restructuring can currently be taken out for 3.18%. You can save $ 194 in credit costs.
Comparison of the costs of an old loan with a debt rescheduling loan of $ 5,500
|Old credit||Debt rescheduling loan|
|amount||Residual debt $ 5,400.69||Loan amount $ 5,500|
|effective interest rate||5.5%||3.40%|
|running time||another 36 months||36 months|
|Monthly rate||$ 162.75||$ 160.92|
|Credit costs (interest + fees)||$ 458.40||$ 288.51|
The debt rescheduling savings amount to $ 169.87.
Example 3: Loan for debt restructuring over $ 3,500
In this example, you want to reschedule a loan of $ 5,000 that has a term of 3 years at 5.2% interest. After 1 year, you take out a new loan for a debt rescheduling of $ 3,500. With interest of around 3% you save a good $ 81 in the 2-year term.
Comparison of the costs of an old loan with a debt rescheduling loan of $ 3,500
|Old credit||Debt rescheduling loan|
|amount||Remaining debt $ 3,417.17||Loan amount $ 3,500|
|effective interest rate||5.2%||3.45%|
|running time||another 24 months||24 Months|
|Monthly rate||$ 150.03||$ 151.13|
|Credit costs (interest + fees)||$ 183.76||$ 125.18|
The savings from the debt rescheduling amount to $ 58.60.
Conclusion : The three examples show savings between $ 58 and $ 385. As a rule of thumb, you can derive from this: The longer the remaining term and the higher the remaining debt of the old loan, the greater the savings. This means that if you want to reschedule a loan, don’t wait too long.
How much does it take to repay a loan?
If you want to reschedule a loan before the end of the term, the bank demands compensation for this, the prepayment penalty. In the case of installment loans, this compensation may not exceed 1% of the remaining debt. In the event of a possible remaining debt of $ 5,400 that you want to pay off with a debt rescheduling loan, the bank may demand a maximum of $ 54 from you. If the remaining contract term of the loan is less than 1 year, the prepayment penalty may only amount to a maximum of 0.5% of the remaining debt.
This regulation with the maximum cap of 1% came into force on June 10, 2010 under the EU Consumer Credit Directive. This rule does not apply to loans taken out before this date. What matters in the contract is decisive.
Is the prepayment penalty for debt rescheduling also capped?
Building finance is usually about several hundred thousand dollars, which is a much higher amount than installment loans. When rescheduling a building loan, the amount of the prepayment penalty is not regulated by law. It depends on the outstanding loan amount, the interest rate and the current interest level. A prepayment calculator helps you to calculate the compensation in the event of construction financing.
Frequently asked questions about debt restructuring
How long does it take for the loan to be repaid?
The whole process can be completed in a few days, but it can also take several weeks. This depends, among other things, on whether you take out your new loan for debt restructuring online via a settlement or whether you want to speak to your old bank again about better conditions. In some cases, debt rescheduling will also be delayed if you submit the required documents later.
What documents do I need for debt restructuring?
On the one hand, you need the usual documents as for every new loan. These are mostly:
- Proof of income
- Bank statements
- possibly a copy of the employment contract or pension notice
- Copy of the identity card
In addition, there are the documents relating to the loan to be repaid:
- the existing loan contract
- the data on the current debt level (remaining debt, remaining term)
- a transfer authorization, so that the new lender can take care of the formalities with the old bank
Can I easily cancel my loan?
An installment loan can be terminated at any time with an informal written notification. Loans that are secured by a mortgage, for example construction finance, are an exception. This regulation applies since June 11th, 2010. Credit agreements that were concluded before this date usually have a 3-month notice period. In the case of debt restructuring, you usually do not have to worry about terminating the old contract because the new lender takes care of all the formalities.
Are debt rescheduling cheaper than other loans?
Yes, there are banks where rescheduling is cheaper than other installment loans. Therefore, when searching for a debt rescheduling loan, you should always specify the purpose of “debt rescheduling”. This is good when assessing your credit rating. By doing so, you indicate that you do not want to take out an additional loan, but rather want to settle an existing debt. And a better credit rating can lead to cheaper interest rates.
Is debt restructuring possible without Credit Bureau?
The same applies to a debt rescheduling loan as to any other borrowing: A reputable provider will find out about the creditworthiness, i.e. the creditworthiness, of the potential borrower before concluding the contract. This is usually done by querying data from Credit Bureau, which stores the economic data of 66 million Germans. Loans that are granted without a Credit Bureau query are usually expensive. This is why most loans without Credit Bureau are more expensive than existing installment loans. A debt rescheduling is then not worthwhile.