Refinance an existing instalment loan and save on interest in the long term
13.05.2025
11
Minutes
Katrin Straub
Managing Director at nextsure
An instalment loan taken out years ago is now burdening you with high interest rates. By refinancing in a targeted way, you can benefit from current low interest rates and regain your financial flexibility. This article shows you step by step how to proceed and what you need to look out for.
The topic in brief and concise terms
Refinancing is worthwhile if the new interest rate is significantly lower than the old one, which can save thousands of euros.
The early repayment fee for instalment loans is legally capped at a maximum of one per cent of the outstanding balance.
By consolidating several loans, you get a single, often lower monthly repayment and a clearer view of your finances.
Spotting potential: When refinancing pays off
Refinancing is particularly worthwhile when current loan interest rates are significantly below the rate on your existing agreement. This can often save several percentage points. For example, with an outstanding balance of €12,000 and a remaining term of 48 months, a reduction in interest from eight to four per cent can mean savings of more than €1,200. An improved personal credit rating since the original agreement was signed can also secure you much better terms now. Before taking action, you should prepare a detailed household budget to determine your savings potential. Analysing your current agreements is the first step towards noticeable financial relief.
The path to a cheaper loan: A step-by-step guide
The process of refinancing is straightforward and can be completed in four clear steps. Here's how to proceed systematically:
Check the terms: Determine the exact remaining balance, interest rate and remaining term of your existing loan. You can find these figures in your repayment schedule or request them directly from your bank.
Calculate early repayment charges: Check whether your bank charges a fee for early settlement. By law, this is capped at a maximum of one per cent of the remaining balance.
Obtain new quotes: Compare the terms offered by different banks for a refinancing loan without obligation. Pay attention to the effective annual interest rate.
Arrange for the loan to be settled: Once the new contract has been signed, the new bank usually handles the entire process and settles the existing loan directly.
A loan with another bank can often offer the best terms. The next key cost factor is the legally regulated early repayment charge.
Expert tip: Minimise early repayment charges
Banks are allowed to claim compensation for lost interest income if a loan is repaid early. However, the amount of this so-called early repayment compensation for personal loans is strictly regulated by law. It may amount to a maximum of one per cent of the outstanding balance if the remaining term is more than twelve months. If the remaining term is shorter than that, the fee drops to just 0.5 per cent. For an outstanding balance of €8,000, that would mean a maximum of €80. Our expert tip: check your old contract carefully, because sometimes banks even waive this fee altogether. With our calculator, you can calculate the early repayment compensation online and see whether the interest savings exceed the costs. This minor hurdle should not stop you from avoiding high interest charges.
Financial clarity: bundling multiple loans into one loan
Often it is not just one, but several small loans that strain the household budget – from overdrafts and credit card bills to zero-percent financing. Through debt consolidation, you can combine these different liabilities into a single, easy-to-manage instalment loan. Instead of many small repayments to different creditors, you only pay one predictable monthly instalment. This not only makes your financial planning much easier, but often also improves your SCHUFA score, as you have fewer contractual partners. Consolidation is an effective way to reduce your monthly outgoings. But what conditions must you meet for this step?
Being in a good position: The prerequisites for successful debt restructuring
To receive an attractive offer for refinancing from a bank, certain criteria must be met. These are similar to those for a standard loan application. The most important requirements are:
A regular and stable income from a permanent employment relationship.
A positive SCHUFA report with no negative entries.
Being of legal age and having a fixed place of residence in Germany.
A plausible and comprehensible household budget calculation.
Your creditworthiness is the key to low interest rates. A good credit rating can reduce the interest rate by up to three percentage points. A new agreement for an existing loan is therefore directly dependent on your financial reliability. With these prerequisites in place, the doors are open to the many benefits of refinancing.
Your benefits at a glance: save on interest, reduce your instalments, stay flexible
The decision to refinance brings tangible financial benefits that go far beyond the interest savings alone. It reduces your monthly instalment, giving you new financial flexibility each month. At the same time, you gain flexibility, as the new agreement often allows you to negotiate better terms such as free special repayments or the option of payment breaks. A loan with a long term can reduce the instalment even further. Consolidating several debts also provides a clear financial overview with just one point of contact. This makes managing your finances simpler and more transparent.
Refinancing an existing instalment loan and saving on interest over the long term is not a complicated process, but a smart financial decision. You have seen that the potential savings are significant and that hurdles such as early repayment charges remain manageable. Take advantage of the current interest-rate benefits to pay off your old, expensive loans and reorganise your finances. Whether you are optimising a single loan or consolidating several loans, the gain in financial control and liquidity is a crucial step towards a more carefree future. Do not hesitate to explore your options.
Request an individual risk analysis now: Have your insurance situation reviewed free of charge and receive specific optimisation suggestions.
More useful links
Bundesbank offers statistics on interest rates and yields for consumer credit to private households (instalment loans).
Bundesbank provides the MFI interest rate statistics on outstanding amounts and new business.
ECB offers a PDF document on MFI interest rate statistics.
Bundesbank provides a factsheet on consumer credit (instalment loans).
Statista offers a study on the interest rate for consumer credit (new business) to private households.
Consumer Advice Centre provides information on loans and gives saving tips.
Consumer Advice Centre explains residual debt insurance, which is often expensive and offers little cover.
Consumer Advice Centre Schleswig-Holstein calls for a statutory limit on overdraft interest rates in a press release.
FAQ
How much does refinancing cost?
Refinancing itself is usually free of charge. The only potential fee is the early repayment charge for paying off the existing loan early. However, for instalment loans this may amount to a maximum of one per cent of the remaining debt if the term still has more than one year left, and 0.5 per cent if the remaining term is shorter.
Can I increase the loan amount when refinancing?
Yes, this is a common use case. As part of refinancing, you can take out a higher loan amount to not only pay off the old loan, but also create additional financial flexibility for new purchases.
Is refinancing also worthwhile for small loans?
Even with smaller loan amounts, refinancing can be worthwhile, especially if the old interest rate is very high (e.g. for overdrafts). The percentage savings are often considerable. Calculate carefully whether the interest savings exceed the small early repayment compensation.
What documents do I need for refinancing?
You will usually need your last three payslips, your bank statements, a copy of your employment contract, the existing loan agreement, as well as a redemption statement from your previous bank showing the exact outstanding balance.
What happens after submitting the refinancing application?
After you have signed the new loan agreement and verified your identity, the new bank pays the agreed amount directly to the old bank to pay off the loan. From then on, you only pay the new, lower instalment to your new loan provider.
Can I also refinance if my credit rating is not perfect?
Debt restructuring is also possible with less-than-perfect creditworthiness, although the interest terms may then be less favourable. Consolidating several loans can even improve your creditworthiness in the long term, as it organises your financial situation.
