Refinance an expensive loan with a direct bank: reduce interest costs by up to 30 per cent
14.07.2025
7
Minutes
Katrin Straub
Managing Director at nextsure
Does an expensive instalment loan from your direct bank significantly reduce your monthly budget? By refinancing, it is often possible to save several thousand euros in interest costs and regain financial flexibility. This article shows you step by step how you can benefit from the current low interest rates.
The topic in brief and concise terms
Refinancing can reduce interest costs by thousands of euros, especially if the existing loan has a high interest rate.
The early repayment charge for instalment loans is legally capped at a maximum of one per cent of the outstanding balance, making refinancing predictable.
By consolidating several loans into a single one, not only is the overview improved, but the personal credit score with SCHUFA is often increased as well.
Potential analysis: When refinancing a direct bank loan is worthwhile
Refinancing makes sense when the interest savings outweigh the costs incurred. Even an interest rate that is 0.2 percentage points lower can make refinancing worthwhile. Check your existing loan agreement: if the effective annual interest rate is significantly above current market conditions, for example four per cent, there is considerable potential for savings. With an outstanding balance of EUR 15,000 and a three percentage point difference in interest rates, you can already save over EUR 450 per year.
The decision depends on three factors: the remaining outstanding balance, the remaining term and the amount of the early repayment charge. If the remaining term is less than twelve months, refinancing is often no longer worthwhile. Many borrowers underestimate how much even a small reduction in interest rates lowers the overall cost over several years. A thorough review of your contract documents is the first step in making an informed decision for or against the refinancing of your loan. Checking the current terms is crucial to realising the full savings potential.
The 4-step plan for successful debt restructuring
A structured process is the key to success when refinancing an expensive loan. With the following four steps, you can systematically secure better terms:
Determine the remaining balance and contract details: Request a precise breakdown of the outstanding debt for the desired repayment date from your current bank. This document should also include the notice period and the amount of any potential early repayment charge.
Obtain new loan offers: Use online comparison calculators to submit non-binding requests for terms. Enter „refinancing“ as the purpose to receive suitable offers from more than 20 banks.
Compare total costs: Add the early repayment charge to the total cost of the new loan. Only if this sum is lower than the remaining costs of your existing loan is the switch worthwhile.
Take out the new contract and complete the repayment: Once the new bank has approved the loan, it will transfer the loan amount either to you or directly to the old bank in order to pay off the existing loan. That completes the loan repayment with another bank.
Careful execution of these steps ensures that you actually save money in the end and do not fall into a cost trap.
Expert tip: Avoid legal pitfalls with early repayment charges
The early repayment charge is a fee that banks levy for the lost interest income when a loan is repaid early. However, its amount is strictly regulated by law. Under Section 502 of the German Civil Code (BGB), the compensation for instalment loans may amount to a maximum of one per cent of the remaining balance to be repaid. If your loan has less than twelve months remaining, this rate even falls to 0.5 per cent.
For example: with an outstanding balance of EUR 12,000, the bank may charge you a maximum of EUR 120 as compensation. Our expert tip: check your bank’s demand carefully. In the past, calculations were often incorrect, which can lead to potential savings of several hundred euros. A free online early repayment charge calculator can provide initial clarity here. By the way, no early repayment charge is applied to overdrafts, which makes refinancing particularly attractive in this case.
Choosing the right debt consolidation loan: More than just the interest rate matters
The lowest interest rate is not always the best deal. When choosing a new loan, look for flexible contract terms that suit your personal circumstances. These features are key:
Free special repayments: The option to make additional payments at any time without fees shortens the term and saves interest. Many banks allow annual special repayments of up to ten per cent of the loan amount.
Payment holidays: Some providers allow one or two instalments a year to be skipped, which can be helpful in times of financial difficulty.
Same or lower monthly instalment: The new instalment should not place a greater burden on your budget than the old one. With an online calculator for adjusting your loan instalment, you can find the optimum monthly payment.
Fast digital processing: A fully digital application process often speeds disbursement to under 48 hours.
A loan with an interest rate 0.1 percentage points higher, but flexible repayment options, can be the better choice in the long term. This way, you secure not only financial benefits, but also the flexibility you need for the future.
Improve your creditworthiness through targeted refinancing
Debt restructuring can noticeably improve your creditworthiness. If you combine several small loans or instalment payments into a single loan, you send a positive signal to credit reference agencies such as SCHUFA. Instead of managing five different liabilities, you are left with just one, which is seen as a sign of financial organisation and control. This often leads to a direct improvement in your credit score.
A better score of, for example, 20 points can make the difference between a loan being approved and it being declined. In the long term, you benefit from this effect, as you will receive significantly better terms for future financing, for example for a car or a property. The debt restructuring to improve creditworthiness is therefore a strategic decision for your financial future. Timely instalment payments over twelve months further reinforce this positive effect.
Practical example: More than 2,000 euros saved through refinancing
A concrete calculation example illustrates the savings potential. Suppose you have an existing loan with an outstanding balance of €20,000, a remaining term of 48 months and an annual percentage rate of nine per cent. Your monthly instalment is around €500.
You find a refinancing offer with an annual percentage rate of four per cent for the same term. The new monthly instalment would be only around €451 – a monthly saving of €49. Over the full 48 months, the saving adds up to €2,352. Even after deducting the maximum early repayment fee of one per cent (€200), a net gain of €2,152 remains. This example shows how a consolidation of several loans reduces the burden. Switching from an expensive overdraft facility to an instalment loan can even enable greater savings of more than ten percentage points.
Refinancing an expensive loan is one of the most effective ways to reorganise your finances and save money in the long term. With the knowledge from this guide, you can assess the offers from direct banks, avoid cost traps and strengthen your negotiating position. Do not wait until high interest rates place unnecessary strain on your budget. Every month without optimisation costs you real money that you could be putting to better use for your goals and wishes.
Request an individual risk analysis now: Have your insurance situation checked free of charge and receive concrete optimisation suggestions.
More useful links
The Bundesbank provides detailed statistics on interest rates for consumer loans to private households, particularly instalment loans.
Comprehensive statistics on deposit and lending rates can also be found at the Bundesbank.
The Federal Statistical Office (Destatis) provides information on wealth and debt in Germany.
A recent press release on over-indebtedness among private households can be found at the Federal Statistical Office (Destatis).
Deloitte offers insights and analysis of the German credit market.
The KfW Group provides analyses and forecasts on the credit market.
Results of the Bank Lending Survey in Germany are available from the Bundesbank.
The Consumer Advice Centre offers helpful information and money-saving tips on loans and borrowing.
FAQ
What is the difference between refinancing and follow-on financing?
Refinancing refers to switching to a new bank to pay off an existing loan and benefit from better terms. A follow-on financing arrangement, on the other hand, governs the further financing of a mortgage coming to an end, often with the same bank.
What documents do I need for a loan enquiry to refinance my debts?
As a rule, you will need the last three payslips, your bank statements, a copy of your identity card, as well as the contract documents and a redemption statement for your old loan.
Can I increase the loan amount during the refinancing?
Yes, many banks also offer an increase in the loan amount as part of a debt restructuring. This requires appropriate creditworthiness and is checked during the same application process.
Is an early repayment fee charged when refinancing an overdraft facility?
No, when replacing an overdraft facility, no early repayment fee is charged. You can replace it at any time with a cheaper instalment loan at no additional cost.
How do I find the best time to refinance?
The best time is when the general interest rate level is significantly lower than the interest rate of your existing contract. At present, we are in a phase in which many loans taken out a few years ago are more expensive than new offers.
What happens if my application for refinancing is declined?
A rejection initially has no negative consequences, as a terms enquiry is SCHUFA-neutral. Your existing loan simply continues. You can check your creditworthiness and try again at a later date, or add a second borrower.
