Debt restructuring possible at any time

First of all, it is good to know that you can repay an overdraft granted in the current account at any time. You do not have to observe any notice periods for this revolving credit granted until revocation. In contrast to an early repayment of a cash loan, banks do not charge prepayment penalties. Announcement of repatriation is also not necessary. To get rid of the expensive overdraft facility, all you need to do is make a transfer in favor of your checking account. It is entirely up to you whether the funds for this transfer come from a new cash advance or other sources of money.

The right course of action

The right course of action

If your bank is one of the institutions that does not actively respond to its customers for cheaper credit than the overdraft facility, you should contact your bank advisor. Almost every institute also has a cash credit in its product range. With a few exceptions, this is almost always significantly cheaper than the overdraft facility offered. But be careful: The conditions for cash loans, which are tied to a constant and therefore constant borrowing rate throughout the credit period, can vary significantly depending on the provider. The applicant’s credit rating also plays a role here.

Before you sign the loan agreement, you should always consult one of the many loan comparisons offered online. Once you have made your decision and received the loan approval, the procedure is very simple: all you have to do is sign the contract in which you previously specified your overdrafting current account as the payment account and make it available to the provider again. A few days later, the credit amount will be credited to your checking account.

Possible interest rate advantages

Possible interest rate advantages

When talking about rescheduling a overdraft facility, the focus is usually on the interest benefits that can be achieved. And that can actually be significant. Currently (November 2014), the average interest rate payable on a overdraft facility is around 10 percent. An average interest rate of around 15 percent is charged for an unauthorized, tolerated overdraft. For an installment loan, on the other hand, depending on the desired term, an average of only 5.5 to just under 6 percent is required.

Depending on the provider, the interest rate for an overdraft facility can also be between 7.5 percent and just under 13 percent. The interest rate for a cash loan, on the other hand, currently varies between 2.75 percent in the optimal case and 12.99 percent in the maximum case, depending on the provider and / or the applicant’s creditworthiness. Based on the average values, there is an interest advantage of up to 135 USD per year with a long-term overdraft facility of only 3,000 USD if this is replaced by a cash credit:

Overdraft facility: 10% on $ 3,000 = $ 300 pa
Cash loan term 36 months: 5.5% to $ 3,000 = $ 165 pa interest advantage $ 135 pa
Cash loan term 84 months: 6% to $ 3,000 = $ 180 pa interest advantage $ 120 pa

Liquidity disadvantages due to debt restructuring

Liquidity disadvantages due to debt restructuring

As interesting as a debt rescheduling measure can be with regard to the possible savings in interest rates, it also has disadvantages. It is generally to be welcomed that the cash loan, unlike the overdraft facility, is being repaid in regular monthly installments. However, if liquidity is very scarce, the necessary repayment of the loan can also be a disadvantage. Therefore, check very carefully whether you can cope with the monthly charge arising from the cash borrowing on a permanent basis.

In our example, a cash loan limited to 36 months with an interest rate of 5.5 percent would mean a monthly charge of 90.59 USD. If you choose a loan term of 84 months, a monthly installment of 43.83 USD would still have to be paid based on the then applicable average interest rate. Debt restructuring can only be considered a sensible measure if the monthly liquidity outflow is also acceptable in the longer term. If this is not the case, you should not look for a cheap cash loan, but consider a counseling session with a debt counseling center.

Beware of debt rescheduling

Beware of debt rescheduling

There is always a risk of increasing debt as a result of a debt rescheduling measure if you do not have the overdraft line deleted from your checking account after the overdraft facility has been paid off. So there is a great temptation to overdraw the current account again at short notice. A short-term overdraft facility can then easily become a short-term overdraft. If you allow that, you have taken the first step into the debt spiral. Therefore, after the discard return, have the overdraft line withdrawn to a reasonable, small amount that is sufficient to cover short-term overlaps.

Almost always involved: Credit Bureau

Almost always involved: Credit Bureau

You cannot get a loan or even an account from a German banks without the institution where you came in contact with Credit Bureau. Therefore, do not hide the amount of the overdraft facility granted or any other credit obligations that may exist in the course of borrowing. The provider of your choice will find out everything anyway and will hardly provide you with a loan if the information is incorrect.

The Credit Bureau Score, a key figure determined by Credit Bureau based on various data and your credit history, is often not only decisive for whether you get the loan at all. If you have applied for a loan with credit-dependent conditions, he decides together with your income about the interest rate to be paid for it. If you only have an average or weaker credit rating, you are usually better advised with a loan on terms that are independent of credit rating.

In particular, because of the data stored at Credit Bureau, it is necessary that you specify the repayment repayment as the purpose of the loan application. If you neglect this, the existing credit facility and the new loan applied for will be added together when checking your loan request, which could lead to a loan rejection.

How to change banks with an existing mortgage loan?

Do you have a current mortgage , taken out with your bank, and wish to open a new account at another banking establishment? You have the right. Here’s what you can do concretely.

Is it possible to open a new bank account, with a loan outstanding in its original bank?

Is it possible to open a new bank account, with a loan outstanding in its original bank?

The answer to this question is yes. Having a current mortgage in your current bank should not prevent you from changing your banking establishment , if that is your choice, or simply from opening a new account at this establishment.

Indeed, since the beginning of February 2017, the Congilaw allows everyone to be able to change banks easily.

You can thus have a new account in another bank , and make a request for redemption of your current mortgage , with the new banking establishment. You can also decide to leave your loan in the original bank, and open a new bank account elsewhere.

The procedure is relatively simple for the person interested in a change of bank. Indeed, it will suffice to provide a mandate and to its future bank.

At his level, that’s all he will have to do, then the new bank will take care of all the necessary formalities.

Why is this procedure possible?

Why is this procedure possible?

The original bank, although you are a client, is in no way committed to you, since there is no written agreement between the two parties (nor an oral agreement).

You are therefore within your rights, and free to leave your bank, even if you have taken out a mortgage with it . The bank is not entitled to compel you to remain its client.

Possible obstacles…

Possible obstacles…

So that the procedure can succeed, it will be necessary, however that you have regular income, and that you are not subject to a bank ban either.

Indeed, if the loan is not bought back by the new bank, you still have the obligation to repay it in your original bank, this does not change. You will therefore have to continue to receive regular income in order to repay the loan .

Obviously, if you were prohibited from banking, the new chosen bank will not be able to accept you as a new customer, you could not change banks.

Keep your loan in your bank, and open a bank account elsewhere

Keep your loan in your bank, and open a bank account elsewhere

Keep your loan, but open an account in another bank, you are entirely entitled to do so. On the change side, the domiciliation of accounts will be done in the new bank.

Then the repayment of the mortgage, taken out in the original bank, will be made by means of a permanent transfer each month.

This automatic procedure of course requires regular income to be paid into the new bank account, that goes without saying.

This solution allows you to have accounts in two different banks. As for the current mortgage, to be repaid, this “simplifies” things. On the other hand, as a customer, you must be fully aware of the bank charges that each of the two banks will charge on your accounts! This can generate significant costs.

Have your home loan bought back by the new banking establishment

Have your home loan bought back by the new banking establishment

Do you want to close all of your accounts in your original bank, for your own reasons? Have you taken out a mortgage in this bank?

If you want to close your accounts in your home bank, and have your current loan transferred to your new bank , you will have to request a redemption from your new bank .

The new bank will carefully review your file. But beware, because this one, after study, is not under the obligation to accept you as a new client, nor to buy back your mortgage. It is a risk to take for you. You will therefore have to be careful, and not close your other accounts too quickly.

On the other hand, if your file interests this bank, it will do everything necessary so that you quickly become part of its clientele. For this, she may consent to a commercial, even financial, gesture towards you. This could be a discount, reduced bank charges, advantages … Each banking establishment has its methods to attract a potential customer.

Indeed, if a profile has a “good” financial profile, attractive, inspiring confidence; it will always be interesting for a bank. She will therefore do everything necessary so that he does not go to another establishment than his own.

Negotiating a mortgage loan: what are the advantages for you?

Negotiating a mortgage loan: what are the advantages for you?

The negotiation of the repurchase of your mortgage is important for you because you it is the opportunity to put into play the conditions relating to your loan .

In this crucial step, you will talk with the bank that interests you about the duration of the loan, the interest rate, and also the repayment deadlines . Every important point for you should be addressed there.

By negotiating skillfully with a bank, you can obtain very attractive rates. You will also be able to benefit from lower insurance costs than from the competition.

Also be aware that you can get reduced monthly payments.

By having yourself seconded by a real estate broker, you will be sure to have a strong ally with you.

You will have someone by your side who fully understands your expectations. Indeed, you will have previously discussed with him all the points to be negotiated. This real estate broker will be able to support you effectively in your negotiation, so that you obtain maximum success.

As you can see, a successful negotiation will bring you significant advantages.

In conclusion…

Changing banks when you have a mortgage in progress is entirely possible . Here you have the choice between keeping your current mortgage in your original bank, or requesting the repurchase of this loan by your new bank.

Before you decide, carefully consider the pros and cons of each solution.

If you hesitate between these two choices, it will be best for you to take advice from a real estate broker, who will provide you with all the information you need.