What is debt restructuring?
Every loan agreement can be terminated prematurely, although this is often associated with costs. Termination makes sense if unforeseen liquid funds are available. Termination can also be considered if it is more advantageous to work with new loan terms. This can be the case, for example, if the interest rate level has dropped significantly. However, questions of transparency and the extension or shortening of the remaining payment period can also be a motivation to plan a debt restructuring.
What does debt restructuring offer?
Debt restructuring ensures that existing debts are transferred to a new lender. The debt rescheduling can also be implemented in such a way that different credit variants are combined with one creditor. Debtors with a confusing debt situation benefit from rescheduling if the complexity is reduced. You will then receive a precise overview of how high your future monthly burden will be and within which periods you can regain your debt-free status. Debt restructuring may also benefit if the original loan agreements were concluded at a time when interest rates were higher.
When should debt restructuring or private bankruptcy be sought instead of debt restructuring ?
A debt rescheduling is only recommended if the debtor is recognizably well positioned after the debt rescheduling in order to be able to easily pay the interest and the repayment for the remaining term of the new loans. If this is not feasible, instead of rescheduling, the debtor should first seek a debt settlement procedure that could possibly lead to private bankruptcy in a second stage. In the debt settlement process, a quota is set for the individual loans with which these are repayable. If an agreement is reached with such a procedure, then the next step is to strive for debt rescheduling.
What is the difference between rescheduling and follow-up financing?
Follow-up financing is mainly known in the real estate sector. Loans are usually granted here that have no fixed interest after a defined term of five, ten or even more years. Specifically, the loan expires on a certain day and the customer can repay the entire remaining amount if he has the appropriate funds. If this is not the case, then he needs a new loan agreement with the same or a different bank in order to repay his debts with new contractual terms after the interest rate has expired. In most cases, it is advisable to take care of follow-up financing many months before the fixed interest rate expires.
How do you approach debt restructuring?
With regard to the termination of existing contracts, decisions can only be made when the new loan contracts are ready for signature. However, the signature under new contracts should only be made if all costs for the termination or termination of the old contracts are known. It is important that there is complete transparency in this context, only then should old contracts be terminated and new ones entered into. This is pretty easy if you stay at the same bank. However, the search for the optimal debt rescheduling loan should not only refer to the previous bank, since the competition may offer better conditions. A new bank is also happy to take over the formalities for the redemption of old loans.
What costs can banks charge for debt restructuring?
The bank that gives up loan agreements or transfers them to new loan agreements can demand early repayment compensation for the loss of interest. The amount of these costs depends primarily on the term and the interest rate difference compared to the previous loan agreements. If, however, special repayments or special cancellations have been agreed, the costs for a prepayment penalty can be lower or even completely eliminated. With new loan contracts, it is worth taking such special repayment options into account when entering into the contract.
Which bank is eligible for debt restructuring?
In principle, debt restructuring can be sought at any bank. As with a new loan agreement, the borrower must demonstrate long-term credit to the bank. A person interested in rescheduling first contacts their previous bank and asks them to develop proposals for rescheduling. This should be considered in particular if the checking account is already heavily overdrawn. At the same time, it is advisable to obtain offers from other banks with different solution variants. The decisive factor for the final choice should be the amount of the interest rate and the term of the remaining loan. When in doubt, it is more advantageous to tend towards a longer-term loan that offers a low interest rate.