Refinancing to reduce monthly insurance premiums: How to create financial flexibility
10.05.2025
3
Minutes
Katrin Straub
Managing Director at nextsure
High monthly loan repayments put a strain on your budget and prevent necessary spending on your insurance cover. Debt restructuring can reduce your monthly burden by up to fifty percent. Find out here how you can use this financial leeway for your insurance policies.
The topic in brief and concise terms
Refinancing can reduce your monthly loan repayments by up to 50 per cent, freeing up budget for important insurance cover.
Combining several loans improves clarity and can positively influence your Schufa score by reducing the number of credit entries.
The prepayment penalty for instalment loans is capped by law at a maximum of one per cent of the outstanding balance, which often makes refinancing very attractive.
Analysis: How high loan repayments jeopardise your financial security
The monthly burden of several loans is often underestimated and can quickly amount to hundreds of euros. An overdrawn overdraft facility often costs an average of nine per cent interest, while personal loans often cost six per cent or more. These expenses tie up capital that is lacking for solid cover – for example, for income protection insurance, which is available from as little as €30 per month. Many households could save more than €500 a year simply by repaying an expensive overdraft facility. Replacing an expensive overdraft facility is often the first step. The ongoing burden not only prevents the building of reserves, but also the purchase of essential insurance cover.
Unlock potential: halve monthly payments by refinancing
Refinancing bundles several expensive loans into a single loan with better terms. Even an interest-rate difference of 0.2 percentage points can make refinancing worthwhile. Let's say you have €5,000 in overdraft debt at 10% interest and an instalment loan of €10,000 at 8%. Your monthly interest burden is over €100. A new loan of €15,000 at 4% interest would reduce this burden to €50. By consolidating several loans, the SCHUFA score often also improves, as there is then only one liability. This financial reorganisation is the key to regaining room for manoeuvre for important future-planning matters.
Making the most of your financial leeway: From the money you’ve saved to the right insurance
The financial leeway gained through refinancing should be used strategically. Reducing your monthly loan instalment by 50 euros already creates the budget for solid term life insurance. This protects your family in the event of the worst-case scenario with a sum insured of 150,000 euros or more. Our expert tip: After refinancing, draw up a detailed household budget. List your income and the new, reduced expenses. This will show you in black and white how much additional money is now available for your protection. Improving your credit rating can also make future financing easier. In this way, pure cost savings become an active contribution to your financial security.
The 4-step plan for successful debt restructuring
A debt restructuring can be implemented systematically in four clear steps:
Inventory: List all existing liabilities with loan amount, remaining term and interest rate. A typical household often has two to three such items.
Obtain quotes: Obtain non-binding quotes for a refinancing loan in the amount of your total remaining debt. Pay attention to the effective annual interest rate.
Check costs: Clarify whether prepayment compensation applies to your old loans. For personal loans, this is limited to a maximum of one per cent of the remaining debt.
Conclude the contract: After signing the new loan agreement, the new bank pays off the old loans directly. You then only pay a single, lower instalment.
This process, which often involves a loan settlement with another bank, usually takes no longer than 14 days.
Legal framework and expert tips
German Civil Code (BGB) strengthens the rights of borrowers and makes refinancing easier. A key point is the cap on early repayment compensation for consumer loans taken out after 10 June 2010. If the remaining term is more than twelve months, the compensation may not exceed one per cent of the outstanding balance. If the remaining term is less than one year, it is only 0.5 per cent. Particularly important is the ordinary right of termination under Section 489 BGB: loans with a fixed interest rate can always be terminated after ten years with six months’ notice, and completely free of charge. Our expert tip: when refinancing existing loans, also check whether an expensive outstanding debt insurance policy can be cancelled, which will further increase the savings.
Long-term benefits: More than just money saved
Refinancing to reduce monthly insurance premiums is more than a short-term saving measure. It is a strategic step towards greater financial stability. With a single, lower instalment, you not only regain an overview of your finances, but also improve your creditworthiness. A tidy Schufa profile with just one loan instead of three or four has a positive effect. This effect not only makes it easier to take out insurance, but also to finance future projects. A loan with a long term can reduce the instalment further. This lays the foundation for a worry-free financial future.
Request an individual risk analysis now: Have your insurance situation checked free of charge and receive specific optimisation suggestions.
More useful links
The Federal Statistical Office offers detailed tables and data on over-indebtedness in Germany.
The Deutsche Bundesbank provides statistics on interest rates for consumer loans to private households.
The Hamburg Consumer Advice Centre explains how insurance policies can be adjusted in the event of financial difficulties.
In addition, the Hamburg Consumer Advice Centre offers advice on reducing costs for private health insurance by switching tariffs.
The Statistics Portal offers publications on housing in Germany.
The Federal Agency for Civic Education (bpb) provides information on over-indebtedness and personal insolvency.
The German Insurance Association (GDV) offers an overview of statistics on the German insurance industry.
The Caritas provides information on online debt counselling.
You can also find further statistics on deposit and lending interest rates at the Deutsche Bundesbank.
FAQ
What exactly is debt restructuring?
When refinancing, you take out a new loan to pay off one or more existing loans. The aim is to benefit from better terms such as lower interest rates or a lower monthly repayment and to improve your financial overview.
Which loans can I refinance?
In principle, you can refinance almost any loan. This includes instalment loans (e.g. for a car or furniture), overdrafts and even mortgage financing, although the latter are subject to special conditions and notice periods.
What documents do I need for refinancing?
As a rule, you will need the loan agreements for your existing loans, which show the outstanding balance and the terms. In addition, the new bank requires the usual proof of creditworthiness, such as payslips and bank statements.
How long does a debt restructuring take?
The process from submitting the application to settling the existing loans usually takes between seven and 14 working days. The exact duration depends on the processing time of the banks involved.
Can I also refinance to increase my repayments and finish sooner?
Yes, that is also a common reason. If a pay rise gives you more financial leeway, you can shorten the term by refinancing with higher repayments and thus save on interest costs overall.
What happens to my residual debt insurance for the old loan?
If you pay off the old loan, you can usually cancel any associated residual debt insurance. Although you will not get back any contributions already paid, you will save on future premiums.
