Refinance your car loan: How to reduce your monthly payment by up to 20 percent
17 May 2025
5
Minutes
Katrin Straub
CEO at nextsure
Is your monthly car loan payment too high? Refinancing can significantly reduce your financial burden. This article shows you in four steps how you can save over one hundred euros each month through lower interest rates.
The topic in brief and concise terms
A remortgage is worthwhile if the new interest rate significantly undercuts the cost of the early repayment fee (max. 1% of the remaining debt).
Important requirements include a good credit rating, a stable income, and a clean SCHUFA report.
Additional savings potential lies in cancelling an expensive residual debt insurance and consolidating multiple loans.
Potential Analysis: When Debt Restructuring Offers Financial Benefits
Refinancing is advisable when the interest savings exceed the costs. The decisive figure is the early repayment penalty, which is capped by law. It amounts to a maximum of one percent of the remaining debt if more than twelve months remain on the term.
For example, if your remaining debt is 15,000 euros and the new interest rate is two percentage points lower than the old one, you save 300 euros in interest annually. The one-time penalty of 150 euros (one percent of 15,000 euros) is quickly amortized. Even an interest rate difference of just one percentage point can mean savings of over 500 euros over three years.
Many borrowers underestimate that even a reduction in the interest rate from eight to six percent can reduce the monthly instalment by almost ten percent. Therefore, a detailed comparison is essential before making a decision. With our early repayment penalty calculator, you can accurately calculate the costs. This provides a solid foundation for the next step.
Check prerequisites: You must meet these criteria for more favorable financing
Banks check your creditworthiness before agreeing to a debt restructuring. A regular income from a permanent employment contract is one of the most important prerequisites. Additionally, you should no longer be in the probationary period, as this poses a risk for lenders.
To obtain approval, the following conditions usually need to be met:
Legal age and a permanent residence in Germany.
Flawless SCHUFA report without negative entries.
Verifiable and regular income (e.g., through the last three payslips).
An existing German bank account for transactions.
A second borrower with a good credit rating can increase the chances of approval by over 25 percent and often lead to better terms. If you meet these criteria, nothing stands in the way of a request for restructuring to improve creditworthiness. This paves the way for concrete implementation.
The 4-Step Plan: Systematically Achieving a Lower Monthly Rate
A structured process is the key to success when refinancing your car loan. With just four clear steps, you can efficiently reach your goal. This plan minimizes effort and maximizes your savings.
Here’s how to proceed with the refinancing:
Assessment of the existing loan: Determine the exact remaining balance, the current interest rate, and the remaining term from your existing contract. Request a settlement amount from your bank that already takes into account the prepayment penalty.
Obtain and compare offers: Get at least three different offers for a new loan. Pay attention not only to the effective annual interest rate but also to flexible repayment options.
Conclude the new loan contract: Once you have selected the best offer, conclude the new loan contract. Wait to cancel the existing loan until the new loan amount has been credited to your account.
Repay the old loan: Transfer the agreed settlement amount to your old bank. After the repayment, request the release of the car registration document (certificate of registration part II) if it was held as security.
Through this process, you can often achieve a lower monthly payment. The next section shows you how you can further exploit the saving potential.
Maximise savings potential: Expert tips for your debt consolidation
Beyond the pure interest comparison, there are additional levers to maximize your savings. Often, hidden costs in the old credit agreement can be eliminated during refinancing. A thorough examination reveals these opportunities.
Our expert tip: Cancel an existing residual debt insurance. This expensive additional policy becomes unnecessary with a refinancing. The cancellation can reduce your monthly burden by another 15 to 30 euros. A critical evaluation of the necessity of residual debt insurance is always advisable.
An additional tip is to consolidate loans. If you have other installment loans alongside your car loan, you can bundle them into a single, cheaper financing plan. This not only lowers the overall costs but also improves your SCHUFA rating by reducing the number of your loans. With these strategies, you optimize not only your installment but your entire financial structure.
Legal Foundations and Pitfalls of Early Termination
The legal framework for refinancing consumer loans is clearly regulated in the Civil Code (BGB). § 502 BGB limits the amount of early repayment compensation, protecting you from excessive demands by banks. The maximum fee of one percent of the remaining debt is a fixed parameter in your calculations.
For credit agreements concluded before 11 June 2010, different rules often apply. A notice period of three months was common, and early repayment compensation was sometimes not allowed at all. It is worth looking into the old contract documents here.
Watch out for incorrect cancellation policies in your old contract. Consumer centres report that up to 80 percent of contracts concluded between 2010 and 2016 contain errors. A faulty clause can mean that you can cancel the loan years later and refinance without paying compensation. A legal review can save several hundred euros here.
Request an individual risk analysis now: Have your insurance situation checked free of charge and receive specific optimisation suggestions.
More useful links
Wikipedia explains the term 'Umschuldung' in general.
The Deutsche Bundesbank offers statistics on interest rates and yields for consumer loans to private households (installment loans).
Destatis (Federal Statistical Office) refers to datasets on loans and online transactions.
The consumer advice centre provides tips on saving money on credits and loans.
Destatis (Federal Statistical Office) contains tables and data on the topic of over-indebtedness.
The Deutsche Bundesbank offers MFI interest rate statistics (stocks, new business).
The Bankenverband explains what creditworthiness is and how the assessment works for consumers.
Destatis (Federal Statistical Office) offers a debt advisory atlas as a visualized statistic.
FAQ
When is the best time to refinance a car loan?
The best time is when the general interest rate is significantly lower than the rate of your existing contract. Refinancing is particularly effective in the early years of the term, as the remaining debt is still high and the interest savings are greatest.
What documents do I need for the debt restructuring?
You will typically need the last three payslips, your bank statements, a copy of your identity card, the existing loan agreement, and a redemption certificate from your old bank showing the exact remaining debt.
Can I refinance a balloon payment?
Yes, refinancing is particularly advisable before the final balloon payment in a balloon financing deal is due. You can replace the high final payment with a more affordable installment loan, thereby avoiding an expensive follow-up financing from the dealer.
How long does refinancing take?
The entire process from obtaining a quote to repaying the old loan usually takes between one and three weeks. The disbursement of the new loan often occurs just a few working days after signing the contract.
Are there any fees for applying for a debt consolidation loan?
No, requesting and preparing loan offers are generally free of charge and non-binding in Germany. Costs only arise if you pay off the old loan early (early repayment penalty).
What is the difference between debt restructuring and loan repayment?
Loan redemption refers to the simple act of repaying a loan ahead of schedule. Debt restructuring is a specific form of loan redemption where the repayment is financed by taking out a new, more favorable loan.
