Replace expensive overdraft credit: How you can save hundreds of euros a year with a low-cost instalment loan
08.05.2025
7
Minutes
Katrin Straub
Managing Director at nextsure
The convenient overdraft on your current account often costs more than twelve per cent interest per year. Many Germans use this option permanently and thus pay unnecessarily high charges. Find out here how to replace an expensive overdraft facility with a cheaper instalment loan to significantly reduce your financial burden.
The topic in brief and concise terms
An expensive overdraft facility with interest rates often above twelve per cent should be replaced by a low-cost instalment loan, in order to save hundreds of euros per year.
Debt consolidation creates financial predictability through fixed instalments and a clear term, and helps to systematically reduce debt.
After debt restructuring, building up an emergency fund of three to six months’ salary is crucial to bridge future financial shortfalls without taking on new debt.
Cost analysis: The hidden interest burden of the overdraft facility
Using an overdraft is convenient, but costly. At an average interest rate of twelve per cent, an overdraft of 3,000 euros already costs 360 euros in interest per year. Many consumers do not use their overdraft for just a few days, but remain in the red for months or years. Almost one in ten Germans starts the new year with their account overdrawn. This ongoing use leads to a considerable financial burden that is often underestimated. A precise analysis of your bank statements quickly reveals the true cost. This insight is the first step towards breaking out of the cost trap and finding a sustainable solution.
The smart alternative: benefits of an instalment loan
An instalment loan offers a structured and cost-effective alternative to expensive overdraft facilities. Unlike an overdraft with its variable and high interest rates, an instalment loan gives you clear terms. Refinancing €5,000 can already save over €100 in interest in the first year. The advantages are clear:
Lower interest rates: Instalment loans are often available for less than half the overdraft rate.
Fixed instalments: Consistent monthly repayments allow for reliable financial planning.
Clear term: You know exactly when the loan will be fully repaid.
Committed repayment: Each instalment reduces the remaining debt rather than covering only interest.
With a suitable instalment loan, you actively reduce your debt. This creates the basis for switching to a more affordable form of financing.
In four steps: Successfully refinance your overdraft
Converting your overdraft into an instalment loan is a straightforward process that will immediately ease the strain on your finances. Follow this simple guide to regain control:
Assess your needs: Check your exact level of debt. Borrow the amount needed to bring your current account back to zero.
Compare offers: Get several loan offers. Pay attention to the annual percentage rate to take all costs into account.
Apply for the loan: Submit the application for the most favourable instalment loan. A clean budget calculation improves your chances of getting good terms.
Repay the overdraft: As soon as the loan amount is in your account, clear the overdraft in full straight away.
This structured approach not only helps you save on interest, but also avoid potential pitfalls.
Avoid common mistakes when refinancing
There are several pitfalls when refinancing that can cancel out the savings effect. A common mistake is to choose a loan amount that is too low and does not fully cover the overdraft. Another point is choosing the term: A longer term does reduce the monthly instalment, but increases the overall cost of the loan. Avoid using the overdraft again after refinancing, otherwise you risk falling into a new debt spiral. Since May 2014, banks have no longer been allowed to charge processing fees for loans. Make sure that your contract does not contain any hidden costs. Armed with this knowledge, you can set the course for a debt-free future.
Expert tip: Know your rights as a consumer
As a borrower, you are protected by comprehensive consumer rights. Banks are legally obliged, in the event of persistent and significant use of your overdraft, to advise you on more cost-effective alternatives. This provision under Section 504a of the German Civil Code is intended to protect consumers from falling into a cost trap. Our expert tip: You are entitled to a 14-day right of withdrawal for every consumer credit agreement. This right gives you time to consider the decision calmly. In addition, all loan details must be clearly set out in the European Standardised Information Sheet for Consumer Credit. A careful review of the contract is essential. These legal provisions strengthen your position vis-à-vis the bank.
Sustainable financial health after debt restructuring
A successful debt restructuring is the first victory for your finances. To remain debt-free in the long term, building an emergency fund is essential. Experts recommend setting aside a reserve of three to six months' salary in an instant-access savings account. This reserve protects you against unforeseen expenses and prevents you from having to use an expensive overdraft again. Around 19 per cent of Germans have no financial reserves whatsoever, which makes them vulnerable to new debt. See debt restructuring as an opportunity to reorganise your finances and, if appropriate, consolidate other liabilities such as credit card debt into a favourable loan. Such a step can further reduce your monthly outgoings and pave the way to a stable financial future. Request an individual risk analysis now: Have your insurance situation checked free of charge and receive specific recommendations for improvement.
More useful links
Wikipedia explains overdrafts (Dispo) in general.
The German Bundesbank provides detailed statistics on deposit and lending rates.
The German Bundesbank provides statistics on consumer credit to private households, particularly instalment loans.
The Federal Statistical Office (Destatis) provides comprehensive information on assets and debts in Germany.
Statista offers a statistic on monthly interest rates for overdrafts in Germany.
The Federation of German Consumer Organisations (vzbv) provides a position paper on overdrafts.
The Consumer Advice Centre explains how to save on loans and borrowing.
The Hamburg Consumer Advice Centre looks at the development of overdraft interest rates.
The Tagesschau reports on overdraft interest rates and consumer protection in this area.
The Consumer Service Bavaria shows ways to escape the overdraft trap.
FAQ
What is the biggest mistake when using an overdraft?
The biggest mistake is using it on a permanent basis. The overdraft facility is only intended for very short-term cash shortages of a few days. Using it over several months or even years leads to extremely high interest costs and can result in a debt spiral.
What documents do I need for a debt consolidation loan?
As a rule, you will need the last three payslips, your bank statements to prove the disposable balance, and a valid form of identification. A household budget showing your income and expenditure is also helpful.
Can I continue to use my overdraft after refinancing?
Yes, the overdraft facility generally remains available on your current account. However, it is advisable not to use it after refinancing and instead build up an emergency fund for unforeseen expenses, so as not to fall into the cost trap again.
What happens if I can no longer pay my instalment loan?
If you are having difficulty making payments, contact your bank immediately. Solutions such as a payment break or an adjustment to the instalment amount can often be found. Residual debt insurance can also provide cover for such cases.
What are the current interest rates for instalment loans?
Interest rates for personal loans depend on your creditworthiness, but are often in the range of three to six per cent. It is always worth comparing offers, as banks’ terms can vary significantly.
Does the bank have to help me with refinancing?
Banks are legally required to offer you advice if you make significant use of your overdraft facility over an extended period. This advice is intended to explain cheaper alternatives such as an instalment loan.
