Replacing loan early – so you get out of expensive interest rates
March 2, 2019
Anyone borrowing money from the bank usually bonds to fixed terms for several years. But what many consumers do not know: a loan can be replaced prematurely. How it works, and how much you can save.
This is how you proceed
- 1. First, check whether a rescheduling makes sense for you. Please take the documents of your existing loan to hand.
- 2. Compare the interest of your old loan with the conditions of today, eg with our installment loan comparison. The current interest rates for mortgage lending can be found here.
- 3. If replacement seems to be useful, please follow the instructions in the next section.
Replacing credit early – this is how it works
Most loans are now easy to repay prematurely. In the case of mortgage lending, however, the remaining term of the interest rate commitment must first be awaited. But even here, a previous rescheduling is often possible.
- 1. In the first step, check when you can cancel the old contract. An installment loan can usually be terminated within four weeks. In the case of a construction loan, the residual term of interest rate fixation is important.
- 2. Calculate a favorable offer for your new contract, see point 2 above.
- 3. Select your new bank and submit a condition request there.
- 4. Complete the new contract as soon as you have the bank’s commitment.
- 5. Cancel the old loan. Pay back the existing balance with the money from the new contract.
When is a rescheduling useful?
Especially with significantly lower interest rates, consumers should think about a rescheduling. This always makes sense if you save significantly on the new loan compared to the old one. The following arguments support this:
- Your new loan rate is significantly lower than the old one. For example, you save 100 euros or more per month.
- You want to combine several loans into one. This will give you a better overview of your finances.
- You have overdrawn your credit line or credit card withdrawal framework. With a favorable installment loan, the debt can be repaid on schedule monthly.
- Your credit rating has improved, eg through a higher income. You will receive lower interest rates if you repay your existing loan early.
If you want to take out a loan, you must meet certain requirements. In the case of a rescheduling, in principle the same conditions apply as for a new borrowing. The most important points at a glance:
- Of majority and resident in Germany
- Sufficient income: You should be able to carry the amount of the monthly installment.
- Permanent employment contract: Some banks also accept fixed-term contracts if the remaining term is at least 12 or 24 months.
- Your credit rating should not have deteriorated since you received the old loan. This is especially true for the private credit score.
- Collateral: with a installment loan, the bank is usually satisfied with a sufficient income. For mortgage lending, however, it requires the registration of a mortgage on an unpolluted property. If you would like to repay an existing loan early, the previous property id usually suffices.
What should I pay attention to?
Debt rescheduling works quite simply nowadays, and is done quickly. Nevertheless, consumers should pay attention to a few points.
- Effective interest rate : The decisive factor for a loan is the annual percentage rate of charge. It includes the actual costs, and serves as a comparative value.
- Binding conditions: The decisive factor is the interest from your binding condition inquiry. Especially for applicants with only average or weak creditworthiness, the actual conditions may differ significantly from those of the advertising.
- Additional costs: Pay attention to additional costs: Some bank advisors try eg to give your customers a residual debt insurance. The insurance premium can make the monthly rate considerably more expensive.
Alternatives to installment
If the current account is in a negative position, or if the rate is too high, rescheduling can make sense. But not always the classic installment is the cheapest. If the applicant’s credit rating is rather average, there are better alternatives.
Total 3,000 euros
Period 90 days installment loan call facility Private loans Interest in percent ∅ 3.5% 5.0% 5.5% Interest in Euro ∅ 26.25 37.50 41.25 when recommended?
- cheap with good credit
- Interest premiums with average creditworthiness
- flexible as a Dispo only cheaper
- Conditions are the same for all applicants, even with weaker credit ratings
- fair interest even with reduced credit rating
- apply for installment loan
- call facility
Cancel old loan
A credit line can be repaid without formalities by a simple deposit or transfer to the checking account. A installment loan can be terminated without any problems, see below. For the repayment, a one-month notice period must be observed. Until the repayment can be made, so passes a month. The bank may charge a so-called prepayment penalty. This is a kind of compensation for interest not received. The amount for the compensation may not exceed one percent of the outstanding loan amount.
Expiry of the termination
- 1. The customer informs the bank in writing in a two-line message of the termination request.
- 2. The Bank calculates the remaining loan amount, the interest due and the prepayment penalty.
- 3. The credit institution shall inform the customer of the total amount due and the date of repayment.
- 4. The customer transfers the outstanding amount to the loan account.