Interest rates are rising again, so it makes sense to reschedule debt while the level is still low. The old loan is replaced by a new loan. Find out how it works and what to look out for.

In a debt restructuring, one or more existing loans are replaced by taking out a new loan with a lower interest rate. Depending on the type and amount of the existing loan, the borrowing costs can quickly be reduced by several hundred euros. Debt restructuring can also improve the overview of financial obligations if several small loans are replaced by one large one. With interest rates slowly rising, it makes sense to think about the move now.

Debt restructuring is worthwhile if a new loan is cheaper than one or more existing loans, taking all costs into account. This means that you should also include possible closing costs for a new installment loan in your considerations. In the event of early termination, the bank may demand a compensation payment, a so-called prepayment penalty. Whether your bank demands such compensation is stated in your current loan agreement.

Alexander Artopé has been an internet entrepreneur since 1999. In 2007 he founded the loan comparison portal smava, one of the first German fintechs.

According to the EU Consumer Credit Directive, the prepayment penalty for loans taken out after June 10, 2010 must be based on the remaining debt as a percentage. If your loan runs for more than twelve months, the bank can demand a maximum of one percent of the remaining debt from you. With a remaining debt of 10,000 euros, that would be a maximum of 100 euros. If your remaining term is less than twelve months, the compensation is a maximum of 0.5 percent.

Debt restructuring can not only make sense because of the favorable interest rate situation. An improved income situation can also speak for it. Because if your income has increased while your expenses remain the same, your credit rating may have improved. The better your credit rating, the lower the interest to be paid. You can use an online calculator to easily calculate the savings from a debt restructuring.

Since debt restructuring is a new loan, you can also agree on the general conditions such as the term and the amount of the monthly installment. For this reason, too, debt restructuring can make sense, either because you want more time to repay or because you want to get rid of your loan obligations faster.

First get an overview of the remaining debt of the loan or loans if you want to pay off several. Check, for example, for installment loans, credit lines, overdraft facilities or your credit card charge, whether debt restructuring is worthwhile.

In the case of installment loans, you can request a transfer certificate from your current bank. This contains all relevant information about your current loan and provides information about the costs incurred in the event of early repayment. This certificate greatly speeds up the debt restructuring process. Because the bank you are switching to has all the information at a glance and can therefore redeem your old loan more quickly. You can also obtain this transfer certificate before you terminate the current loan. However, some banks charge a service fee for this.

Whether at your house bank, another branch bank or via comparison portals on the Internet – no matter where you get loan offers, you should pay attention to two points:

The sum should be at least as high as the remaining debt. If you have money available, you can also check whether you can use it to pay off part of the debt as part of the debt restructuring. The amount of the new loan is reduced accordingly.

When using the new loan, you should state “debt restructuring”. This is the only way for a bank to know that you do not want to take out additional credit. This has a positive effect on the credit check. Because of the purpose “debt restructuring” only the new loan installment is taken into account in your income and expenditure account, but not the installments of your current loans.

With the term of your new loan, you determine how high the monthly repayment rate will be. The shorter the term, the higher the monthly installments. When it comes to terms and installments, don’t just think about today, but also about tomorrow and the day after. You should use a maximum of 40 percent per month of what is left over from your income-expenditure account for loan repayment. Accordingly, you can choose the right term.

If possible, you should specify a second borrower, e.g. your spouse. This can have a positive effect on your credit rating, increasing the chances of lower interest rates.

As soon as you have found the offer that suits you best, you can take out your new loan. Clarify with the new bank beforehand whether they will cancel your current loans or whether you have to do this. Banks handle this differently. The transfer certificate already mentioned is very helpful at this very moment. It gives the new bank an exact overview of all relevant information and thus speeds up the debt restructuring process from several weeks to just a few days. You then use the new loan to pay off your old loan in the course of termination.