Debt the installment loan? How it works
May 28, 2020
Replacing an expensive loan with a low-interest one can be worthwhile. Before deciding on a debt restructuring, however, it is important to compare well and the right thing …
The installment loan served as an urgent purchase and has been in existence for three years. The rate flows from the account month after month and is good. Good is? You should take a closer look at the topic at regular intervals. There may be providers who are now offering significantly lower interest rates. In that case, it makes sense to reschedule the loan.
What does debt restructuring actually mean?
A borrower cancels his previous contract.
In order to settle the remaining balance there, he takes out a new loan. In the best case, he saves because the new provider has to pay less interest and costs to pay off the remaining debt than if he would continue to serve the old contract.
Check debt restructuring in 3 steps
Step 1: I clarify through my contract documents which monthly installments I have to pay for my previous loan and for how long.
Step 2: I get financing offers for this transfer fee. In order to be able to make reasonable comparisons, these should either be based on the same installment amount or the same remaining term as the previous contract. The borrower really only saves if he …
- pays lower installments in the future with the same term or
- the term is shortened at the same rate and
- there is also a cost advantage in the case of a prepayment penalty.
Step 3: quit. Contracts that have been concluded since June 11, 2010 can be terminated at any time. Contracts dated before June 11, 2010 have a three-month notice period. The new contract must be scheduled accordingly. By the way: We are happy to take this step for our customers.
Read contract terms
In addition to the effective interest rate, the installment amount and the term, the other details in the small print are also important. It is an advantage if the new loan can be repaid at any time and enables special repayments free of charge. So customers remain flexible. The Private Credit, for example, can be concluded for amounts starting at 2,500 USD and with a term of between twelve and 96 months. Special repayments are possible at any time free of charge.
With the help of a cheaper installment loan, you can also get rid of high amounts outstanding in the overdraft facility. This is worthwhile because the overdraft facility is generally significantly more expensive than installment loans. But be careful: do not use the overdraft facility immediately after the redemption – in the worst case, this can result in an endless spiral of debt.
Prepayment penalty for installment loans
If you terminate a loan agreement early, the bank may be able to demand compensation for your lost interest income. Details are regulated in the contract conditions.
The following applies to installment loans:
- The customer may terminate loans that were closed from June 10, 2010 at any time.
- For contracts before June 2010, the borrower must give three months’ notice.
- The customer can terminate variable credit contracts without fixed interest rates, such as overdraft facilities, at any time without risking early repayment penalty.
Do you now know what to watch out for? Or do you have any questions? Feel free to comment or contact us directly.