Does it make sense to want to replace credit with credit? What are the benefits? Many consumers face these questions every year. The most important answer first. Yes, it can even be highly recommended to replace old loans with a new loan early. However, there are a few small pitfalls to be aware of, which can make an early loss-making business.
Loaning with credit – there are good reasons for that
The reasons for wanting to replace the existing loan with credit can be varied. One of the most common good reasons is the overdraft interest. In comparison to the installment loan, the overdraft facility is a real interest eater. Between 12 and even up to 18 percent overdraft interest may be due for overdrafting. A very high overdraft facility leads to a shock of disillusionment for every account holder. The day of fright is the day that the interest statement comes out of the statement printer.
The rescheduling of the overdraft facility into an installment loan is in many cases the most sensible way out of this situation. The interest burden is halved in one fell swoop. Savings efforts are no longer eaten up by interest. Repayment in monthly steps also ensures that the payment is really made. Only very few manage this on the current account.
Reclaim financial freedom
With each loan, the personal credit rating for further borrowing is reduced. This is not only due to the total debt burden, but also the amount of the monthly installments. With every new loan application, it is first determined how much scope there is for an installment payment. Roughly speaking, the difference between the actually disposable income and the seizure allowance is checked.
Loans that have already been repaid over a long period of time are of course no longer as valuable as when the contract was signed. This improves the creditworthiness in relation to the total debt burden of the borrower. Nevertheless, a new loan may be rejected. The reason for this is that there is too little scope for monthly installments. By merging various old loans into one new loan, the old installments are eliminated. Additional financing requirements can also be taken into account in the new loan. All in all, sufficient scope for payment in installments was created.
Being able to replace the loan with a loan brings liquidity advantages, it also enables new wishes and lower interest rates to be realized.
Trip hazards to consider
The interest rate level is currently extremely low. Interest rates are likely to rise in the future. Anyone who carries out a debt restructuring always pays the current interest rate. Interest rate losses could threaten in the future.
If possible, you should only redeem an existing loan with credit if the early redemption of old loans without discounts has been agreed. Only then is the full back calculation of interest and fees guaranteed.