Consolidating multiple loans: How you can reduce your monthly repayments by up to 30 per cent
16/06/2025
10
Minutes
Katrin Straub
Managing Director at nextsure
Multiple loans with high interest rates strain your monthly budget and financial flexibility. Refinancing consolidates your liabilities into a single, more favourable instalment and can significantly reduce your costs. This article shows you in four steps how to regain control.
The topic in brief and concise terms
By consolidating multiple loans, you can often reduce your monthly instalment by 20 to 30 per cent.
Debt consolidation improves your SCHUFA score, as instead of many small debts you only have a single, manageable liability.
The costs for early loan repayment (early repayment charge) are legally capped at a maximum of one per cent of the remaining debt.
The problem: many loans, high repayments and lost track
A car loan instalment is €250, the kitchen finance costs €150 and the overdraft is €1,000 overdrawn. Such scenarios quickly lead to a total monthly burden of over €400, often at very different interest rates. The overdraft alone can incur interest of more than nine per cent.
This fragmentation of debt not only makes household budgeting considerably more difficult. Credit reference agencies such as SCHUFA often assess several small loans running in parallel more negatively than a single larger loan. Each individual loan agreement represents a separate financial obligation, which increases the risk of default from the creditors' point of view. Such a structure can lower your credit score by several points.
The result is a financial downward spiral in which a growing share of income is spent purely on interest. But there is a clear way to break this pattern and regain control. The solution is to replace the expensive existing loans with a single, cheaper form of financing.
The solution: Combine multiple loans into one
A debt consolidation bundles all existing liabilities into a single new loan with better terms. Instead of paying three or four instalments to different creditors, you only have one instalment to a bank. This immediately simplifies your finances. However, the key advantage lies in the interest savings, which can often amount to several thousand euros over the term.
A worked example illustrates the potential:
Old loan 1: EUR 5,000 remaining debt at eight per cent interest
Old loan 2: EUR 3,000 remaining debt at ten per cent interest
Overdraft facility: EUR 2,000 balance at twelve per cent interest
By consolidating this total debt of EUR 10,000 into a new interest rate of, for example, five per cent, the interest burden falls considerably. Just the interest difference can reduce your monthly burden by 20 to 30 per cent. Information on how to consolidate an existing instalment loan can be found in our detailed guide. The funds released can be used for repayment or other important expenses.
The prerequisites: When refinancing makes sense and is possible
Debt rescheduling is particularly worthwhile if the interest rates for new personal loans are significantly lower than those on your existing agreements. At present, the median interest rates for personal loans are around 6.67 per cent, which means a considerable saving for many people. Debt rescheduling is, however, subject to certain conditions that banks check.
You generally need to meet the following criteria:
Age of majority and place of residence: You must be at least 18 years old and have a permanent residence in Germany.
Regular income: A permanent employment contract with a stable net income is the most important requirement.
Good credit rating: Your SCHUFA report should not contain any negative entries such as payment defaults.
Our expert tip: Even an expensive overdraft facility can be easily converted into a cheaper personal loan. Since overdraft interest rates are often twice as high as personal loan rates, the potential for savings here is particularly great. Find out more about how to pay off an expensive overdraft facility. This step alone can noticeably improve your financial health.
The Cost Check: Early repayment compensation as a decisive factor
If you repay a loan early, the bank loses planned interest income. As compensation, it can charge a so-called early repayment fee. The amount of this fee is the most important cost factor in a refinancing. The good news: the legislator has set clear limits for consumer loans.
Our expert tip: The legal basis is Section 502 of the German Civil Code (BGB). Accordingly, compensation may amount to a maximum of one per cent of the early repaid amount. If the remaining term of your loan is less than twelve months, the upper limit even falls to 0.5 per cent. Refinancing is therefore only worthwhile if the interest savings from the new loan clearly exceed this one-off fee.
So check your old loan agreements carefully. If the information on how the early repayment fee is calculated is missing or incorrect, the bank's claim may even lapse completely. We show you how to calculate the early repayment fee online in another article. This way, you can make sure the switch pays off for you.
The credit rating boost: How refinancing can improve your SCHUFA score
Consolidating several loans has a positive side effect that many people do not know about: it can improve your creditworthiness. Credit reference agencies such as SCHUFA view a lower number of credit commitments more positively. A single instalment loan that is serviced reliably signals greater financial stability than three or four small loans.
When the old loans are paid off, they are reported to SCHUFA as „settled“. All that remains is the new refinancing loan. This optimised financial status can raise your SCHUFA score by a few points, making future financing, for example for a property, easier. A score above 95 per cent is already considered good.
However, caution is advised when requesting quotes. Make sure that banks send only a „terms enquiry“ and no binding „credit enquiry“ to SCHUFA. Several credit enquiries within a short period can temporarily worsen your score. Even refinancing despite a negative SCHUFA is possible under certain circumstances with specialist providers.
The roadmap to refinancing: In four steps towards financial relief
To successfully consolidate your loans and reduce your monthly burden, proceed systematically. With the following four steps, you will reach your goal with confidence.
Step one – assessment: List all existing loans with the outstanding balances, the current interest rates and the monthly instalments. Do not forget your overdraft facility either. Only then will you have the exact sum you need to refinance. A clean budget calculation for the loan application is half the battle here.
Step two – obtain offers: Using the total sum you have identified, obtain offers for a refinancing loan. Pay attention to the effective annual interest rate and only allow SCHUFA-neutral enquiries for terms and conditions to be made.
Step three – cost-benefit calculation: Calculate the potential early repayment penalty for your existing loans. Compare these one-off costs with the total interest savings from the new, cheaper loan. The savings should exceed the costs by at least several hundred euros.
Step four – completion and settlement: Once you have selected the best offer, conclude the new loan agreement. The new bank will usually transfer the loan amount directly to your old creditors to settle the existing debts. From then on, you will only pay the one new instalment.
This structured process ensures that, in the end, you are in a better financial position than before.
Debt restructuring is an effective tool for optimising your finances, but it requires careful planning. If you are unsure which solution is best for your situation, we will be happy to help. As a digital insurance portal, our mission is to provide you with tailored, easy-to-understand solutions.
Have your insurance situation and financial obligations reviewed free of charge and receive specific suggestions for optimisation. Request your personalised risk analysis now.
More useful links
Wikipedia provides a comprehensive overview of the topic of debt restructuring, including general information and definitions.
The German Bundesbank provides current interest rate statistics on money and capital markets, which are relevant for assessing debt restructuring loans.
The Federal Ministry of Finance provides information on financial market stability in Germany.
The KfW Bank provides information on support programmes and financing options for private individuals.
The Caritas offers online debt counselling for people in financial difficulties.
FAQ
What are the main advantages of consolidating several loans?
The three main advantages are: firstly, a lower monthly instalment due to a more favourable overall interest rate. Secondly, a much better overview of your finances, as you only make one payment to a creditor. Thirdly, an improvement in your creditworthiness and your SCHUFA score.
What costs are incurred when refinancing?
The only significant costs are usually the early repayment charge for paying off your existing loans early. By law, this is capped at a maximum of one per cent of the outstanding balance. The new refinancing loan itself usually does not incur any additional arrangement fees.
What documents do I need for refinancing?
You will usually need the last three payslips, complete bank statements for the last three months, a copy of your identity card, as well as the existing loan agreements with the exact outstanding balances on the settlement date.
Is debt consolidation also possible with a negative SCHUFA?
It is more difficult, but not impossible. Some specialised banks and credit brokers offer solutions for debt restructuring despite negative SCHUFA entries. Additional collateral or a second borrower is often required here, and the interest rates are usually higher.
Is refinancing also worthwhile for small loan amounts?
Yes, even with smaller sums it can be worthwhile, especially if you are paying off an expensive overdraft facility or credit card debt. The difference in interest rates is often so great here that even with a remaining debt of just a few thousand euros, you can make a noticeable saving.
How do I find the best provider for refinancing?
The best way is an independent comparison of loan offers via an online portal. Make sure you submit SCHUFA-neutral rate enquiries so as not to affect your score. Compare the annual percentage rate of charge to see the total costs transparently.
