Consumers can borrow not only for acquisitions but also for rescheduling. In this case they replace existing liabilities with a new bank loan. In the case of debt rescheduling, the loan settlement differs in part from the usual practice for ordinary consumer credit. The bank paying off the debt rescheduling requires the certainty that its client will actually use the money for that purpose and not for any further purchases.
When is the rescheduling of existing loans useful?
In most cases, when rescheduling, consumers want to replace loans that carry high interest rates. Another reason for replacing current liabilities is that the current lender has rejected the desire to extend the term. Credit institutions occasionally suggest rescheduling in their advertising for the sole purpose of aggregating various existing loans into a single liability. However, without interest savings and without a reduction in the monthly loan installment, the rescheduling of existing loans does not provide the consumer with significant benefits.
Before applying for a debt rescheduling bank customers not only compare the terms of the loans offered, but also calculate the actual savings after the deduction of any prepayment interest. For financial reasons, rescheduling the loans makes sense if the compensation payable for the early repayment of old loans is lower than the future interest savings. This is mostly the case with existing loans taken many years ago due to the interim cut in interest rates. A secure savings option is provided by existing loans for which the loan agreement expressly provides for the right to premature redemption free of charge.
The procedure for rescheduling
First of all, it should be examined whether the rescheduling of the loans should cover all existing liabilities or whether individual existing loans can be exempted. This decision can not be made by consumers on all debt rescheduling loans, as some banks give them firm guidance. It is common to include in a rescheduling the loans that are not associated with a discounted interest rate.
Thus, in most cases, real estate financing, a car loan, any promotional loans from Intrasavings Bank and retail payment arrangements are not taken into account when rescheduling the existing loans. The inclusion of partial payments on the credit card account and the disposition credit also do not require all banks lending for rescheduling. However, due to the above-average interest rates on current accounts, it is always advisable. The information about existing loans is obtained by the bank selected for rescheduling from the private credit information, while it asks for the debit balance of the credit card account and the checking account with the borrower.
The transfer of the loan amount is carried out in a rescheduling not on the bank account of the borrower, but in installments on the existing credit accounts. This transfer method ensures that the borrower actually repays the specified loans with the new loan. As individual credit card issuers do not accept payments from third parties, a transfer to the applicant’s bank account will be made in the appropriate cases. Of course, this also includes the partial amount determined for the settlement of the disposition credit and a possible top-up amount.
It is common and often necessary for consumers to rebuild their loans as part of debt rescheduling, as most banks only lend out thousands of dollars in loans. A higher amount increase is usually also possible. In the case of rescheduling, as with all other loans, the Bank uses its revenue and expenditure account to check whether the borrower can pay the monthly installments from his disposable income. Should he desire a higher top-up amount, the likelihood of a successful loan application increases with maturity, as it reduces the monthly repayment installment.
What consumers pay attention to when rescheduling
Almost all consumers who repost existing loans make a price comparison and choose a cheap loan. Some banks have special offers for loans that serve to restructure debt. These involve bank customers in their credit comparison. However, the special loans for the debt restructuring of existing loans are not necessarily cheaper than the cheapest flexible loan offer without earmarking.
The interest rate is the most important, but not the only criterion when selecting a loan offer for debt restructuring. Equally important is the greatest possible flexibility of the repayment agreement. This entitles the holder to unlimited or at least substantial special repayments without any prepayment interest being charged and at the same time to the permission for an occasional installment suspension or for the modification of the repayment agreement during the term.
This should be long enough for the monthly repayments to be low. It does not make sense, after a rescheduling of the loans, including the repayment of the disposition credit, to reclaim it for the payment of the due installment. This can be avoided by the borrower deciding on a sufficiently long repayment term.