Debt rescheduling saves a lot of money – but not immediately
The rescheduling of discretionary loans is a special case, since these loans do not require repayment in the sense of a constant reduction of the loan balance drawn. Conversion into an installment loan will reduce borrowing costs in this case, but does not necessarily result in an apparent lower monthly burden.
Nevertheless, consumer advocates and financial advisors are right when the rescheduling of permanently used disposition loans in a installment loan is recommended in unison. If it is not possible to balance the account from current income in the foreseeable future, an installment loan saves many interest costs compared to the credit line.
An example of calculation *, If a provisioning loan of 000 4,000 is taken out and gradually and evenly balanced at an interest rate of 12.0% over a period of two years, interest totaling in 480 is incurred. If instead an installment loan is repaid in 24 monthly installments of 175 each, the interest adds up to only 207 and thus the repayment is worthwhile.
Loan debt – Do not wait until bottlenecks occur
Not all rescheduling serves only to save interest. Frequently, existing liabilities are restructured in order to reduce the ongoing burdens and to free up scope in the budget. Experience has shown that many borrowers eliminate this unproblematic step until serious bottlenecks and payment difficulties occur.
Even if no credit line has burst yet, illiquidity resulting from excessive loan installments is quickly reflected in the credit rating. If there is a backlog for lack of cover or if the checking account is overdrawn beyond the scope agreed with the bank, this already constitutes an exclusion reason for the lending for many banks. Rescheduling is still possible even then. however, the number of possible banks that are willing to lend is reduced. This tends to result in less favorable conditions.
Credit debt: term, installment or extra payout?
If an existing Kreidt is rescheduled by a new installment loan, which is more favorable in terms of the interest rate, the gained cost scope can be used for three different purposes. In addition to a reduction of the monthly installments, after maturity, a shortening of the term or an additional payout (at a constant rate and maturity) is possible.
In the run-up to rescheduling, the loan agreement must be reviewed for early repayment arrangements. Many banks require a precautionary compensation in this case, others refrain from it. If the loan contract was concluded before 11.06.2010, the compensation can be quite high: at the latest, banks were obliged to implement the Consumer Credit Directive in their contracts. This sets the upper limit for default payments for installment loans at 1.0% of the settlement balance. However, individual banks require additional fees in the range of about 30-100?.
Rulebooks for precautionary compensation
The indemnity must be added to the balance of the loan foreseen for debt consolidation and replaced. Borrowers should inform the new bank of the intended use and directly engage in the cancellation and transfer of the old loan. This allows more favorable terms, as the new loan does not lead to an increase in total liabilities from the bank’s point of view.
When comparing installment loans to rescheduling, the same rules apply in principle, which were ideally taken into account in the initial borrowing. In addition to the most favorable effective interest rate available for personal credit, possibilities for free full and partial repayments as well as additional benefits (installment payments, grace period, right of return, Service channels, residual debt insurance) of the various banks are determined and compared.
Processing fee for loan repayment:
BGH makes debt rescheduling cheaper! The Bundesgerichtshof (BGH) has declared unzulssig processing fees in consumer credit for and granted millions of borrowers a rckwirkenden entitled to refund of money paid room charges.
Credit debt is now cheaper
If a installment loan is terminated before the end of the originally agreed term, a processing fee will be regarded as a retroactive increase in the effective interest rate.
The fee will initially be added to the net loan amount and co-financed. It will not be refunded in case of early full or partial refund.
By eliminating these processing fees, debt rescheduling becomes cheaper!
Processing fee works like interest rate increase
Here is a simple calculation example: A loan over 10,000 is paid with a processing fee of 3%, so that the loan account has a balance of 10,300 on the day of payment. With a nominal interest rate of 5.95%, a monthly loan installment of 300 is agreed.
After 14 months, the borrower repays the loan early. The settlement balance is 7000?. The effective interest rate in this case study is 9.47%, well above the interest rate that would have accrued on a scheduled repayment of the loan over the full term. The greater the share of the processing fee in the total financing costs, the more this effect has an effect on the interest rate.
Costs consisted of the processing fee
By banning Bearbeitungsgebhren financing costs are directly related to the taken by the borrower actually in claim term. After the first landmark rulings by higher regional courts, this could also be seen in the pricing policy of most banks: they cut processing fees and replaced them with a higher borrowing rate so that the reported effective interest rate remained constant.
Individual banks, especially for loans with relatively short maturities, had set the processing fees so high that the substantial portion of the financing costs was attributable to the fees and not to the original interest rate. This practice has now been stopped by the BGH.
Disclaimer remains a cost factor
In the future, borrowers will only have to pay attention to the indemnification of the current loan in the case of planned debt restructuring. If the loan was taken out after 11.6.2010 (the date on which the Consumer Credit Directive came into force), the indemnity will be subject to a statutory upper limit.
According to § 502 BGB the compensation may not exceed 1.0% of the balance deducted, The upper limit is reduced to 0.5% if the remaining term of the loan does not exceed one year. Simultaneously, a second Hchstgrenze applies: The payable by the borrower Vorflligkeitsentschdigung shall not exceed the amount of the interest that would be incurred to planmigen repayment.
Processing fees for premature termination
Many banks demand flat-rate processing fees in addition to what is now known in the industry as a “statutory indemnification”. Usually about 50?, Which are assigned in the price lists services such as the calculation of the settlement balance. Although consumer advocates criticize this practice, the processing fees seem legally unobjectionable.
The law itself considers the indemnity as a substitute for the damage directly attributable to the early repayment, leaving room for further fees in the event of a repayment of credit.
More complicated: rescheduling of real estate loans
The uncomplicated and usually very cost-effective debt rescheduling is limited to consumer loans without collateral security. The rescheduling of current real estate loans is associated with considerably more hurdles.
First, a bank does not have to accept the termination of a real estate loan before the end of the fixed interest period, unless the borrower has a legitimate interest in canceling the loan agreement, which is generally the sale of the financed property requires. Only in the case of the legitimate interest are binding rules for the assessment of the indemnification.
However, there is one possibility for the free rescheduling of real estate loans: The law grants borrowers a free right of cancellation ten years after their disbursement, even if the borrowing rate exceeds this period. On the other hand, if neither such ordinary right of termination nor a legitimate interest in the notice of cancellation exists, the Bank may determine the amount of the indemnity to a large extent at its reasonable discretion.
Save big money by rescheduling a home loan
Anyone who has taken up mortgages for the renovation, purchase or construction of their own home can, after the end of the fixed interest period with the help of creditolo, find an advantageous follow-up financing. As a rule, the fixed-interest period expires after ten years and lends itself to a loan debt restructuring. The new mortgage loan can also replace other loans, such as consumer credit. Often, with the new loan agreement, the monthly installments can be reduced by several hundred USD. Over the entire term of the loan, the savings can amount to amounts around 20,000.