Refinancing existing loans for a clear financial overview: How to reduce instalments and interest rates
26 Apr 2025
9
Minutes
Katrin Straub
CEO at nextsure
Multiple loans, high interest rates, and confusing installment payments are straining your monthly budget. Consolidating existing loans for a clear financial overview can noticeably improve your financial situation. Learn how you can save real money and become debt-free faster with a single, more affordable loan.
The topic in brief and concise terms
Consolidating loans combines multiple debts into a single loan, improving clarity and potentially reducing the monthly payment due to lower interest rates.
The legally capped early repayment penalty (a maximum of one percent of the remaining debt) must be taken into account when calculating the savings.
By consolidating loans and reducing the number of creditors, your Schufa score and therefore your overall creditworthiness can improve.
Creating Financial Clarity: When Debt Restructuring Pays Off
A debt restructuring is sensible when the interest savings exceed the costs. Many borrowers pay interest rates of over eight percent on old installment loans, while new offers often come in at under five percent. Consolidating multiple loans also improves your Schufa score, as you will have only one liability instead of many small ones. A typical example: Three loans with an outstanding balance of 15,000 euros and average interest rates of seven percent cost more per month than a new loan with four percent interest. The savings can amount to several hundred euros over the term. Especially with expensive overdraft facilities, where interest rates often range between nine and 15 percent, the savings potential is enormous. A summary of multiple loans not only creates order but also noticeably eases your monthly budget. Analyzing your current contracts is the first step to recognizing this potential.
The Right Time: Maximising Interest Benefits and Market Conditions
The ideal time for refinancing depends on interest rate trends and your personal situation. Loans taken out during a low-interest phase are often more expensive today than current offers, making refinancing particularly attractive. The greater the interest rate difference between the old and new loan, the higher your savings. An interest rate advantage of just two percentage points can mean savings of over €1,000 on an outstanding debt of €20,000 over five years. Therefore, regularly check the current conditions in the market. Improved creditworthiness, for example through a salary increase, can also give you access to cheaper loans. This makes a favourable instalment loan for refinancing even more accessible. The precise calculation of potential savings is crucial for the next step.
In four steps to successful refinancing
A structured process helps you efficiently and successfully implement the debt restructuring. The following guide takes you through the four most important phases:
Determine remaining debt: Contact your previous banks and inquire about the exact remaining debt as well as the conditions for early repayment. This amount forms the basis for your new loan amount.
Compare offers: Obtain several non-binding loan offers. Pay attention to the effective annual interest rate, as it includes all costs and allows the best comparison.
Conclude new loan agreement: Choose the best offer and sign the new contract. Specify "debt restructuring" as the purpose to increase your chances of approval.
Repay old loans: Once the new loan amount is in your account, transfer the money to your old creditors. Often, full repayment is automatically recognized as termination.
By following this approach, you ensure the transition proceeds smoothly and you do not overlook any important details, especially the legal framework conditions.
Your Rights as a Borrower: Understanding the Early Repayment Penalty
If you repay a loan early, the bank misses out on planned interest income. As compensation, it may charge an early repayment fee. However, the amount of this fee is legally capped. For installment loans taken out after 10 June 2010, the compensation can be a maximum of one percent of the remaining debt if the remaining term is over twelve months. If the remaining term is less than a year, the rate drops to a maximum of 0.5 percent. An example: For a remaining debt of 10,000 euros and a remaining term of 18 months, the maximum fee is 100 euros. You must include these costs in your savings calculation. A calculator for early repayment charges can provide clarity here. Knowing these rules protects you from excessive demands and helps to avoid pitfalls.
Avoiding Common Mistakes in Loan Consolidation
When refinancing, there are some pitfalls that can negate the financial benefit. Make sure to avoid the following common mistakes:
Overlooking costs: Always take the early repayment penalty into account. Refinancing is only worthwhile if the interest savings significantly exceed this fee.
Focusing only on the instalment: A lower monthly instalment is tempting, but it often means a longer term and therefore higher overall interest costs. Always compare the total cost of the loan.
Cancelling old contracts too early: Only cancel your old loans once the new refinancing loan has been approved and paid out.
Overdrawing the overdraft again: After settling the overdraft credit, discipline is required. Do not use the newly gained financial leeway for new debts.
Careful planning and a clear understanding of the total costs are key to a long-term successful financial strategy.
Securing long-term financial health through strategic planning
Restructuring existing loans for a clear financial overview is more than just a short-term savings trick. It is a strategic step towards regaining control over your finances. With just one instalment and a fixed interest rate, your monthly budgeting becomes considerably easier and more predictable. This not only improves your credit rating with agencies such as Schufa but also provides psychological relief. Use the increased clarity to create a solid financial plan. A proper budget calculation for the loan application is a valuable tool in this regard. This sets the foundation for a debt-free future and financial stability. In complex cases, professional advice can help find the optimal solution.
Request a personalised risk analysis now: Get your insurance situation checked for free and receive specific optimisation suggestions.
More useful links
Wikipedia explains the term debt restructuring in general.
The Deutsche Bundesbank offers statistics on interest rates and yields in the area of MFI interest statistics (stocks and new business).
The Deutsche Bundesbank contains statistics on interest rates for consumer loans to private households (installment loans).
Statista shows a statistic on the interest rate for consumer loans (new business) to private households.
The Verbraucherzentrale provides tips on saving with loans and borrowings.
Caritas offers information on debt counseling.
The Deutsche Bundesbank explains its monetary policy.
Statista shows a statistic on the monthly expenses of private households for loan repayment and interest.
FAQ
When is the best time for a refinancing?
A good time is when the current interest rate level is significantly below the interest rate of your existing loans. An improvement in your personal credit rating, such as through a higher income, can also be the right reason to obtain better terms.
How can I find the best debt consolidation loan?
Always compare the annual percentage rates (APRs) of various providers, as this includes all associated costs. Use online comparison tools and obtain several non-binding offers before making your decision.
What happens to my residual debt insurance?
If you repay an existing loan with residual debt insurance, you generally have a right to cancel the insurance. You can get a refund for the proportional, prepaid contributions, which further increases your savings.
Can I refinance even if I have a negative credit rating?
Debt restructuring with a negative Schufa entry is more challenging, but not impossible. Some specialized providers offer solutions, often at higher interest rates. However, an improved financial overview through restructuring can be a first step towards better creditworthiness.
How long does refinancing take?
The process from the request for a quote to the payout and settlement of the old loans usually takes between one and three weeks. Good preparation by having all the necessary documents ready can speed up the process.
Should I lower the payment rate or shorten the term when refinancing?
If you need financial flexibility, a lower rate might be advisable. However, to save the most interest and become debt-free sooner, you should maintain the rate or even increase it, thereby reducing the term.
