Refinancing existing loans for a clear financial overview: How to reduce repayments and interest
26/04/2025
5
Minutes
Katrin Straub
Managing Director at nextsure
Multiple loans, high interest rates and confusing instalment payments place a monthly strain on your budget. Restructuring existing loans to give you a clear financial overview can noticeably improve your financial situation. Find out how you can save real money with a single, more affordable loan and become debt-free faster.
The topic in brief and concise terms
Debt refinancing consolidates several loans into a single loan, improving clarity and can potentially lower the monthly instalment through lower interest rates.
The statutorily capped early repayment charge (maximum one per cent 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 refinancing pays off
Refinancing makes sense when the interest savings outweigh the costs. Many borrowers pay interest rates of over eight per cent on old personal loans, while new offers are often below five per cent. Consolidating several loans can also improve your Schufa score, as instead of many small debts you only have one liability. A typical example: Three loans with an outstanding balance of 15,000 euros and average interest rates of seven per cent cost more each month than a new loan at four per cent interest. The savings can amount to several hundred euros over the term. Especially with expensive overdrafts, whose interest rates often range between nine and 15 per cent, the potential savings are enormous. A combining several loans therefore not only creates order, but also noticeably eases your monthly budget. Reviewing your current agreements is the first step towards recognising this potential.
The right time: making the most of interest rate advantages and market conditions
The ideal time for refinancing depends on interest rate trends and your personal situation. Loans taken out during a low-interest period are often more expensive today than current offers, making refinancing particularly attractive. The greater the interest rate difference between the old and the new loan, the higher your savings. An interest advantage of just two percentage points can already mean savings of more than €1,000 on an outstanding balance of €20,000 over five years. You should therefore regularly check current market conditions. Improved creditworthiness, for example through a pay rise, can also give you access to more favourable loans. This makes a low-cost instalment loan for refinancing even easier to access. An accurate calculation of the potential savings is crucial for the next step.
Four steps to successful debt restructuring
A structured process helps you implement debt consolidation efficiently and successfully. The following guide takes you through the four most important stages:
Determine the outstanding balance: Contact your current banks and request the exact outstanding balance as well as the terms for early repayment. This sum forms the basis for your new loan amount.
Compare offers: Obtain several loan offers without obligation. Pay particular attention to the effective annual interest rate, as this includes all costs and provides the best basis for comparison.
Take out the new loan agreement: Choose the best offer and sign the new agreement. State „debt consolidation“ as the purpose of the loan to increase your chances of approval.
Pay off old loans: As soon as the new loan amount is in your account, transfer the money to your old creditors. Often, full repayment is automatically recognised as notice of termination.
This approach ensures that the transition runs smoothly and that you do not overlook any important details, especially the legal framework.
Your rights as a borrower: Understanding early repayment compensation
If you repay a loan early, the bank loses planned interest income. As compensation for this, it may charge an early repayment fee. The amount of this charge is, however, limited by law. For instalment loans taken out after 10 June 2010, the compensation may be a maximum of one per cent of the outstanding balance if the remaining term is more than twelve months. If the remaining term is under one year, the rate falls to a maximum of 0.5 per cent. For example, with an outstanding balance of €10,000 and 18 months remaining, the maximum fee is €100. You need to factor these costs into your savings calculation. An early repayment compensation calculator can help clarify this. Knowing these rules protects you from excessive claims and helps you avoid pitfalls.
Avoid common mistakes when consolidating loans
When refinancing, there are a few pitfalls that can wipe out the financial advantage. Make sure you avoid the following common mistakes:
Overlooking costs: Always take the early repayment charge into account. Refinancing only makes sense if the interest savings clearly outweigh this fee.
Focusing only on the monthly instalment: A lower monthly payment is tempting, but it often means a longer term and therefore higher overall interest costs. Always compare the total cost of the loan.
Terminating old agreements too early: Only cancel your old loans once the new refinancing loan has been approved and paid out.
Going overdrawn again: After settling the overdraft facility, discipline is required. Do not use the newly gained financial leeway for new debt.
Careful planning and a clear understanding of the total costs are the key to a financial strategy that will be successful in the long term.
Secure long-term financial health through strategic planning
Debt consolidation of existing loans for a clear financial overview is more than just a short-term saving trick. It is a strategic step towards regaining control of your finances. With just one instalment and a fixed interest rate, your monthly household budgeting becomes much simpler and more predictable. This not only improves your creditworthiness with credit agencies such as Schufa, but also provides psychological relief. Use the clarity you have gained to create a solid financial plan. A correct household budget calculation for the loan application is a valuable tool in this regard. This lays the foundation for a debt-free future and financial stability. In complex cases, professional advice can help to find the optimal solution.
Request an individual risk analysis now: Have your insurance situation checked free of charge and receive specific suggestions for optimisation.
More useful links
Wikipedia explains the term debt restructuring in general.
The Deutsche Bundesbank provides statistics on interest rates and yields in the area of the MFI interest rate statistics (outstanding amounts and new business).
The Deutsche Bundesbank contains statistics on interest rates for consumer loans to private households (instalment loans).
Statista shows a statistic on the interest rate for consumer loans (new business) to private households.
The Verbraucherzentrale gives tips on saving money on loans and credit.
Caritas provides information on debt counselling.
The Deutsche Bundesbank explains its monetary policy.
Statista shows a statistic on the monthly expenditure of private households on loan repayments and interest.
FAQ
When is the best time to refinance?
A good time is when current interest rates are significantly below the interest rate on your existing loans. An improvement in your personal creditworthiness, for example through a higher income, can also be the right occasion to obtain better terms.
How do I find the best debt consolidation loan?
Always compare the annual percentage rate (APR) offered by different providers, as this includes all costs incurred. Use online comparison calculators and obtain several no-obligation quotes before making your decision.
What happens to my residual debt insurance?
If you pay off an existing loan with residual debt insurance, you usually have the right to cancel the insurance. You can have the proportionate, premiums paid in advance refunded, which further increases your savings.
Can I also refinance if I have a negative SCHUFA entry?
Debt restructuring with a negative Schufa entry is more difficult, but not impossible. Some specialised providers offer solutions, often at higher interest rates. However, improved financial visibility through restructuring can be a first step towards improving creditworthiness.
How long does a debt restructuring take?
The process from the quote request to the disbursement and repayment of the existing 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 my monthly instalments or shorten the term when refinancing?
If you need more financial flexibility, a lower instalment may make sense. However, if you want to save as much interest as possible and become debt-free more quickly, you should keep the instalment the same or even increase it, thereby shortening the term.
