Who as a consumer closely observes the developments in the financial world, has surely noticed that the interest rate level of the banks changes significantly every year. Now, as a layperson, one can certainly ask the justified question of what serious impact this has on one’s own life? A much bigger influence than you might think at first. The best example is, for example, the topic of credit. A loan taken out a few years ago at TOP conditions that are likely to be valid at that time can, for example, be significantly cheaper at the present time. This is exactly where the opportunity for consumers lies, in the form that you can significantly lower your monthly interest burden with a corresponding activity! The key word is: debt restructuring!Let’s take a closer look at this topic in the following article….
Finding: Existing loans with high interest rates can be replaced by debt rescheduling in so-called low interest rates. So much for the statement, but is rescheduling really worth it? As with all financial transactions, a case-by-case assessment is always recommended.
Interest rates constantly changing
The initial situation before a planned debt restructuring is almost always the same: Due to the financial circumstances of a borrower, loans with a high sum are often associated with long to very long terms. The inevitable result of this is that the financial framework conditions on the financial market also change significantly over these long terms – not only in the form of rising interest rates, but also in the opposite direction! And this is precisely the advantage that should not be underestimated for borrowers. An interest rate that seemed cheap when the contract was signed five, six or seven years ago may be too high in the current loan comparison.
How debt restructuring works
Debt restructuring is basically nothing more than the replacement of one or more existing loans with the help of a new loan on more favorable terms. So you take out a new loan to repay an old loan in one fell swoop. It is particularly worthwhile if there is a significant difference between the interest rate level of the current loan agreement and the current interest rate level on the market. Debt rescheduling is particularly worthwhile if several loans with differently high interest rates are combined to form a loan with generally cheaper loan interest! This also includes the subject of “overdraft facility”!
Debt restructuring must pay off!
One thing has to be clear with every planned debt restructuring: With such a procedure you get out of a current loan obligation to the lending bank! All agreements that were valid up to that point will therefore lapse because the loan will be terminated prematurely. The resulting consequences for the bank are the loss of interest gains. To ensure that this loss is not 100% borne by the bank, the institutions recover the loss of interest through the so-called prepayment penalty.
And it is precisely in this prepayment penalty that the secret of a successful and therefore saving rescheduling lies: If the interest savings are higher than this fee, rescheduling makes sense!