There are usually many reasons why a loan is required to be repaid. Often it is the old liabilities that are to be summarized by a loan and paid in small installments. So many creditors become one big creditor to look after as a borrower.
However, some are also looking for such a loan to replace another loan. Or because the current account is once again in the red and you can’t make the turn on your own. Or maybe to help friends or relatives out of trouble by providing the money they need with the help of a loan.
No matter what a loan is applied for to be redeemed – it definitely brings with it some important facts that should not be forgotten. And here we have summarized them in a short form.
Loan to repay debt
If debt has accrued to several creditors, this is not only annoying, but usually also really expensive. Because all creditors want to be served as soon as possible, because they know that delaying the payment of the debt for too long is usually not helpful because the risk of default increases significantly. It is therefore stepped on the gas and signaled to the debtor that the money must be back with the creditor in the shortest possible time.
This has the disadvantage for the debtor that the monthly charge for the repayment is very high. Especially when there are not just one or two creditors. If there is also the fact that these require high interest payments for the delay in payment, it can be really expensive and not infrequently this is also the step into complete over-indebtedness.
With a loan to pay off the debts can be counteracted effectively. Because a classic installment loan not only brings a low effective interest rate with it, it also ensures that all creditors can be serviced at the same time and the pressure is removed from the debtor. Because then there remains only the bank as a creditor with which individual agreements can be made regarding the monthly rate.
Loan to replace other loans
Many consumers have a long-term loan. Maybe because a house was bought or because an installment loan was needed to invest in different projects. The disadvantage of these consumers is that the interest rate on the loan that they have taken out is usually less favorable than on the loan that is currently being granted. This means that the loan they are paying off is significantly more expensive than loans that are now being taken out.
Countermeasures can always be taken when a loan is taken out with which the expensive loan can be repaid. This is a very common procedure, especially for real estate loans, but this is only really useful if the old loan has been given a special termination clause. This means that the loan can be terminated without a transfer even before the contract expires. If there is this clause in the old and expensive loan, the search for a cheaper loan can begin. If this could be found, the new loan agreement must be signed before the old loan agreement is terminated. This order is of fundamental importance in order not to create a funding gap. The new bank also requires a transfer authorization, which allows it to transfer the money from the new loan directly to the account of the old loan in order to trigger it.
Loan to replace the overdraft facility
The current account is a place that is characterized by many account movements. If the payments exceed the deposits in value, you slip into the overdraft facility, which usually has quite juicy interest for the user. These can put a considerable strain on the monthly budget and, among other things, make it difficult to balance the disposable.
However, if you rely on a small loan here to make up for the overdraft facility, you will not only save a lot of money, but also ensure that the overdraft facility is available again for emergencies. When borrowing, it should be noted that the small loan is preferably not taken out from the bank that manages the overdraft facility. It has no interest in the account being balanced, since the interest income will then cease to exist. The offer regarding small loans should therefore not turn out particularly well. However, if you turn to another bank, the small loan already has an effective interest rate of less than 3 percent.