Debt restructuring: how it’s done!

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What does debt restructuring involve?

What does debt restructuring involve?

A debt rescheduling is always used when a new loan is taken out in order to redeem one or more existing loans prematurely. Rescheduling a loan can be useful for several reasons, for example:

  • Interest savings through lower interest rates on the new loan
  • better overview by repayment of several loans
  • Reduction in the number of different lenders

The most common reason for debt rescheduling today is that the new loan can save interest costs compared to the previous loan. In this and other cases, some steps should be taken to make the debt restructuring as ideal as possible.

Step 1: Compare current loan offers

Since a debt rescheduling always consists of two parts, firstly the early repayment of the old loan and secondly the new loan, the steps to be performed are mainly divided into these two areas. First of all, it is recommended that you as a borrower take a closer look at the current offers in the loan area.

A credit calculator is best suited for this, because with this tool you can compare 30 or more offers from different banks within a few seconds. In such a comparison, it is important to pay attention to various conditions and performance features. Therefore, you should above all consider the following points:

  • effective interest rate
  • optional special repayments
  • any fees
  • Term of the loan
  • possible loan amounts

After you have compared the offers, you can decide what you think is the best offer. Then proceed to the second step, namely the application for the new loan.

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Step 2: Apply for a new loan

Nowadays, it is easy to apply for the desired loan online at almost all banks. You can therefore also use this option for a planned debt rescheduling by applying online for the loan from the bank you chose based on the comparison made.

As a rule, it is only necessary that you provide some personal information and further define what loan amount you want and the term of the loan. Afterwards, the postident identification procedure usually has to be carried out and you have the task of submitting some documents.

After checking the data and documents, numerous banks usually give you a decision within a few minutes whether the loan will be approved or not. If the decision is positive, the loan agreements can then be signed.

Step 3: Inform the previous bank about the planned loan repayment

After the new loan is dry, you can proceed to the third step. This consists of informing the current lender that you would like to redeem the existing loan early.

If it is an installment loan, there will generally be no problems with such a redemption before the end of the term. In this case, the bank will inform you of the current debt balance, which you can then settle after the new loan has been paid out.

However, if the new loan is to be used for debt rescheduling in the area of ​​mortgage lending, there is another point to consider. In this case, most banks charge a fee, which is also known as a prepayment penalty. This can involve considerable additional costs that, in practice, can even make rescheduling no longer economically viable.

Conclusion on debt rescheduling

Conclusion on debt rescheduling

In practice, debt rescheduling is usually easy, especially if it is an installment loan. As the borrower, you are only responsible for deciding on a new loan and then repaying the old loan. With a construction loan, it should also be noted that prepayment penalty is often charged so that rescheduling may no longer bring any financial benefit.