Loans can burden one’s own financial situation in different ways. Loans that were taken long ago may have too high interest rates that are out of date, or simply too many individual loans have been taken. Remedying debt can make sense in order to reduce legacy burdens. Here are some of the benefits of loan repayment and what you should be aware of. The story is on http://hsalliance.org/bankruptcy-terms-the-basic-phrases-you-should-know/
What is a debt rescheduling loan?
Basically, this is a very ordinary installment loan . This serves the purpose to replace or increase other loans. Banks and other providers offer appropriate uses for borrowing.
- In any case, you should make sure that you specify the debt restructuring as the purpose. If you are free to use, you have to take care of yourself to replace existing loans.
Therefore, a rescheduling loan requires more information from a bank than an ordinary loan. Basically, you must make the following information and meet the requirements:
- Minimum age of 18 years
- You need a sufficient credit rating
- Regulated monthly income and salary statements for the last three months
- Alternatively, the last pension notice or, in the case of self-employment, eg the last income tax assessment
- Full statements of recent months
- No negative features in the Schufa
In addition to these basic requirements, the bank needs the data on the existing loans when rescheduling. These include the remainder of each loan, the lender and most often a power of transfer, provided that the bank takes over the change completely for you.
If you have all the required data, you can take out a new loan, which replaces your old loans . As a result, you benefit above all from lower interest rates. In addition, you can get a better idea of your financial situation by combining several loans into one.
How does a debt restructuring work?
In a rescheduling the contract of an old loan is terminated and funded the outstanding balance by a new loan. Their existing debts are initially only relocated 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 without thinking!
- Calculate in advance carefully all associated costs and get a variety of offers for comparison.
- If necessary, contact a specialist lawyer for capital law or consumer protection to clarify all legal issues and not to make any mistakes.
If you have found a suitable offer, pass on all required documents to the appropriate provider. As a rule, this person will take care that your existing loan agreements are duly canceled and replaced.
What you have to pay attention to
In addition to the outstanding balance of the old loan, a possible prepayment penalty for rescheduling is to be observed. Banks are for-profit companies and can demand compensation for the loss of interest due to premature repayment of the entire balance. The amount of a prepayment penalty is subject to legal provisions and is defined in § 502 BGB:
- If the remaining period is more than one year, 1% of the prematurely repaid amount is due.
- With less than one year remaining, banks may only claim 0.5% of the outstanding amount.
The early repayment penalty must be included in the calculation for a debt rescheduling loan, as this amount must later be co-financed. So you should not only pay attention to the outstanding loan amount you want to save, but must include these additional costs. However, in many cases it is not wrong to get a loan overdrawn, especially in periods of low interest rates, so you can save a lot of money.
Also pay attention to additional costs that may be incurred through additional counseling services. It is best to obtain information in advance as to what the relevant information from the specialist lawyer, a tax adviser or the consumer center in your case would cost. You should not ignore these costs when rescheduling, as long as you are dependent on appropriate advice. In any case, it is not wrong to seek competent expert information so that you do not have to worry about unexpected surprises.
Can a prepayment penalty be dropped?
If you want to repost a loan to the same bank, for example, to top it up, they sometimes forego the prepayment penalty. The banks then make that out of goodwill, in order to maintain a long-term customer loyalty. If you just want to top up an existing loan, as your credit rating has improved, it is advisable to seek the lender’s call. These often come to you in response to such a request.
Otherwise, from a legal point of view, there are situations in which a prepayment penalty can be waived in your favor:
- After 10 years, a fixed-term loan agreement does not apply. If you cancel the loan, the lender is not entitled to a prepayment penalty. In addition, you have a period of 6 months from this time, in which the interest rate is renegotiable.
- If the cancellation policy in a loan agreement is flawed, the lender also has no claim to assert his right to a prepayment penalty if you cancel prematurely. In case of doubt, consult a specialist lawyer for capital law, if the exact legal situation should be unclear to you.
- In some cases prepayments can be deducted as income tax expenses. If possible, contact a tax accountant to see if this case applies to you.
When does a rescheduling loan make sense?
In principle, various criteria have an influence on whether debt rescheduling offers or not:
- What is the residual debt of the existing loan, so how much money do you have to repay the bank?
- How long is the remaining term?
- What interest rate does your old loan have?
- What is a possible prepayment penalty?
- What monthly installment can and do you want to pay in the future?
Especially the amount of new credit should be well thought out. If your financial situation has improved significantly in recent times, you can consider using the debt repayment loan at a higher rate and a shorter term. In this way, you benefit from the interest savings and can free yourself from the debt burden more quickly. For example, a salary increase might be an appropriate time to consider reclassifying a loan.
You should also keep an eye on interest rates. If you think about rescheduling, you should give yourself some time in advance to monitor the recent changes in the interest rate market. This will allow you to make the right time and get the best possible savings from the debt restructuring.