In our day and age, where loans are available on every corner and are offered on different terms, it is not surprising that many borrowers look for new loan offers while repaying an existing loan. Not just to be able to make further investments. But also to be able to replace the existing loan with a new loan. Under certain circumstances, this can make sense, since the interest around the loans changes again and again. If they do so in favor of the borrower, debt restructuring from an old loan can bring financial benefits to the borrower. However, only under certain circumstances, which we would like to explain in detail here.
When is a loan to be repaid with a new loan?
There are several reasons to use a loan to redeem a loan. Many borrowers want to get rid of an expensive old loan. In particular, loans that have a very long term and have been serviced for a few years can be recommended for redemption. They usually have an increased interest rate, which can be significantly reduced by a new loan adjusted to the outstanding loan amount.
But even if several loans are serviced at the same time, taking out a new loan can make sense. This is when all loans can be combined into one loan and several creditors become one big creditor. Of course, the same also applies to debts that have accumulated outside of a loan and can thus be cleaned up?
What needs to be considered when repaying a loan with a new loan?
The replacement of a loan with a new loan is subject to fixed rules. This means that the transfer only makes sense if it was also fixed as an option in the old loan agreement. Otherwise it can be very expensive if the old loan is repaid. The banks then charge penalties that are sometimes so high that they are significantly higher than the savings from the replacement. We therefore recommend that every time you take out a loan, make sure that the loan agreement – regardless of its nature – contains a corresponding clause regarding early repayment.
In addition, the old loan contract for a loan with a new loan can only be terminated when a new loan is found and the corresponding contract has been signed. If the process is different, you may end up without credit because the old contract has already been canceled and the new contract has not been approved due to its creditworthiness. It is therefore important that there is always a new loan contract before the old contract is properly canceled.
In addition, it must be borne in mind that each bank checks the creditworthiness of the borrower before issuing a loan. A new loan is only granted if it is good. Anyone wishing to reschedule debt must therefore be able to ensure that they have a good credit rating. If this is not the case, only loans with high interest rates are eligible for the transfer, which in turn means that the transfer is not worth it because no improvement to the old loan can be achieved.
Nothing works without comparison
But before you can even think of repaying a loan with a new loan, a comparison must be carried out in order to find new loan offers. Because if you really want to save, you have to make the effort and compare different offers. In the best case with the help of a comparison calculator, which shows all possibilities and works out very good and above all fair credit offers. These can then be used as the basis for the loan to be replaced with a new loan.