When debt is rescheduled, consumers replace existing liabilities with a cheaper new loan. When calculating the possible savings due to a debt rescheduling, the borrower should not overlook the fact that early repayment of a loan may have to pay prepayment interest depending on the contract.
In most cases, the measure affects several loans, in individual cases it can also refer to the replacement of a single loan with a low-interest new loan. In addition to saving interest, a debt rescheduling loan is recommended if the debtor is dependent on a reduction in the monthly installments and the lender does not approve an extension of the term. A loan to reschedule existing liabilities has some special features compared to an installment loan without a specific purpose.
Evidence of debt restructuring
The new contract partner’s budgetary bill presupposes that his customer actually uses the loan for debt restructuring and does not increase the total debt level with the cash payment. He receives the security if the payment is not made to the debtor’s bank account. Instead, the new lender transfers the individual amounts owed directly to the previous credit accounts so that they are cleared. For this purpose, the debtor provides his contractual partner with a complete list of the existing liabilities, including the respective amounts and account numbers.
The amount of the individual liabilities can be asked from the current creditors. The portion of the debt rescheduling loan intended to settle the overdraft facility can of course only be transferred to the customer’s checking account. This also applies to an increase associated with debt restructuring as well as rounding amounts and sometimes for the settlement of the credit card account, because not all issuers allow transfers by third parties to this.
What to look out for when rescheduling
A careful price comparison can easily be carried out online and leads to the applicant receiving a cheap loan to repay his previous liabilities. In addition to low interest rates, a sufficiently long term must be taken into account so that the borrower does not have to pay too high rates with the overdraft facility. Loans with flexible repayment options such as the right to occasionally suspend payments and the possibility of free repayments are useful for a debt rescheduling measure.
It can be advantageous for the consumer not to include individual liabilities in debt restructuring. This applies to loans with extremely low interest rates, such as car loans. However, lenders often require that a debt rescheduling encompass all of the loans shown in the Credit Bureau information; They mostly only allow exceptions for real estate loans. After having rescheduled their previous liabilities, consumers are careful not to take on any further liabilities before repaying the loan taken out for this measure. Last but not least, this includes limiting the use of credit cards to an amount that the consumer can repay immediately after receiving the monthly statement.
The credit facility should also initially no longer be used. The loan for debt rescheduling does not exclude further orders based on installment payments, especially since the Credit Bureau information provided to the dealers does not contain any information about current liabilities, but only data about possible negative entries. Consumers should avoid making new commitments following debt restructuring. The only exceptions are replacement purchases for defective household appliances, the non-possession of which leads to higher costs than the monthly rate on the purchase price. Among other things, the laundromat is much more expensive for a family than buying a new washing machine.