Replace expensive overdraft: How to save hundreds of euros annually with an affordable personal loan
8 May 2025
6
Minutes
Katrin Straub
CEO at nextsure
The convenient overdraft of the current account often costs more than twelve percent interest per year. Many Germans use this option permanently and thus pay unnecessarily high fees. Find out here how you can replace an expensive overdraft facility with a low-cost installment loan to significantly reduce your financial burden.
The topic in brief and concise terms
An expensive overdraft with interest rates often exceeding twelve percent should be replaced with a cheaper installment loan to save hundreds of euros per year.
Debt restructuring creates financial predictability through fixed installments and a clear term, helping to systematically reduce debt.
After refinancing, building up an emergency fund of three to six months' salary is crucial to overcoming future financial tight spots without incurring new debt.
Cost Analysis: The Hidden Interest Burden of Overdrafts
Using the overdraft facility is convenient, but costly. At an average interest rate of twelve percent, overdrawing an account by 3,000 euros already incurs 360 euros in interest per year. Many consumers use the overdraft not just for a few days, but remain in the red for months or even years. Almost one in ten Germans starts the new year with a negative account balance. This prolonged use leads to a significant financial burden that is often underestimated. A thorough analysis of your bank statements quickly reveals the true extent of the costs. This insight is the first step towards escaping the cost trap and finding a sustainable solution.
The smart alternative: Benefits of a personal loan
An instalment loan provides a structured and cost-effective alternative to expensive overdrafts. Unlike overdraft credits with their variable and high-interest rates, you benefit from clear conditions with an instalment loan. Consolidating €5,000 can save over €100 in interest in the first year alone. The advantages are clear:
Lower interest rates: Instalment loans are often available for less than half the overdraft interest rate.
Fixed instalments: Consistent monthly instalments enable reliable financial planning.
Clear terms: You know exactly when the loan will be fully repaid.
Definite repayment: Each instalment reduces the remaining debt, rather than just covering interest.
With a suitable instalment loan, you actively reduce debt. This lays the foundation for switching to more favourable financing.
In four steps: Successfully refinancing the overdraft facility
Restructuring your overdraft into an instalment loan is a straightforward process that provides immediate relief for your finances. Follow this simple guide to regain control:
Identify your needs: Assess your exact debt situation. Determine the amount required to bring your current account to zero.
Compare offers: Obtain various loan offers. Pay attention to the annual percentage rate to account for all costs.
Apply for a loan: Submit an application for the most affordable instalment loan. A clear household budget will increase your chances of securing favourable terms.
Settle the overdraft: As soon as the loan amount is in your account, immediately clear the overdraft fully.
This structured approach not only helps you save on interest but also avoids potential pitfalls.
Avoiding Common Mistakes in Debt Refinancing
When refinancing, there are some pitfalls that can negate the savings effect. A common mistake is choosing a loan amount that is too low, which does not fully cover the overdraft. Another point is the choice of term: a longer term does indeed reduce the monthly instalment but increases the total cost of the loan. Avoid using the overdraft again after refinancing, as this could lead to a new debt spiral. Since May 2014, banks have been prohibited from charging processing fees for loans. Make sure your contract does not contain hidden costs. With this knowledge, you can set the course for a debt-free future.
Expert Tip: Know Your Consumer Rights
As a borrower, you are protected by comprehensive consumer rights. Banks are legally obliged to advise on more cost-effective alternatives in the case of permanent and significant use of overdrafts. This regulation under § 504a of the German Civil Code (BGB) is designed to protect consumers from falling into costly traps. Our expert tip: You have a 14-day right of withdrawal with every consumer loan agreement. This right gives you time to reconsider your decision at your leisure. Additionally, all credit details must be transparently listed in the European Standard Information for Consumer Credits. A careful review of the contract is essential. These legal framework conditions strengthen your position vis-à-vis the bank.
Sustainable Financial Health after Debt Restructuring
The successful debt restructuring is the first victory for your finances. To remain debt-free in the long term, building up an emergency fund is crucial. Experts recommend setting aside a reserve of three to six months' salary in an instant-access savings account. This reserve protects you from unforeseen expenses and prevents you from having to use an expensive overdraft again. Around 19 per cent of Germans have no financial reserves, making them susceptible to new debt. Consider the debt restructuring as an opportunity to reorganise your finances and possibly consolidate other liabilities, such as credit card debts, into a favourable loan. Such a step can further reduce your monthly burden and pave the way for a stable financial future. Request an individual risk analysis now: Have your insurance situation checked for free and receive concrete suggestions for optimisation.
More useful links
Wikipedia explains the overdraft facility (Dispo) in general terms.
The Deutsche Bundesbank provides detailed statistics on deposit and lending interest rates.
The Deutsche Bundesbank offers statistics on consumer loans to private households, particularly installment loans.
The Federal Statistical Office (Destatis) provides comprehensive information on assets and liabilities in Germany.
Statista provides statistics on monthly interest rates for overdraft loans in Germany.
The Federation of German Consumer Organisations (vzbv) presents a position paper on overdraft credit.
The Consumer Advice Centre provides information on how to save on loans and credits.
The Consumer Advice Centre Hamburg examines the developments in overdraft interest rates.
The Tagesschau reports on overdraft credit interest rates and consumer protection in this area.
The Consumer Service Bavaria highlights ways to escape the overdraft trap.
FAQ
What is the biggest mistake when using an overdraft?
The biggest mistake is using it permanently. The overdraft facility is intended only for very short-term 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 your disposable balance, and a valid ID document. A household budget of your income and expenses is also helpful.
Can I continue to use my overdraft after refinancing?
Yes, the overdraft facility usually remains with your current account. However, it's advisable not to use it after refinancing and instead build an emergency fund for unforeseen expenses, to avoid falling into the cost trap again.
What happens if I can no longer pay the installment loan?
If you encounter payment difficulties, contact your bank immediately. Solutions such as a payment break or an adjustment of the instalment amount can often be found. A residual debt insurance can also cover such cases.
What are the current interest rates for instalment loans?
The interest rates for installment loans depend on creditworthiness, but they often range from three to six percent. It's always worth comparing, as the offers from banks can vary significantly.
Does the bank have to help me with debt restructuring?
Banks are legally required to offer you advice if you make substantial use of your overdraft for an extended period. This advice aims to inform you about more affordable alternatives, such as a personal loan.
