Why is it debt restructuring important?
The rescheduling of existing loans is a popular tool when it comes to combining existing loans into a new loan.
A debt rescheduling loan can be useful if several existing loans are to be combined in one loan in order to save costs or reduce the monthly charge. Those who want to refinance an installment loan can therefore have very different motives. The cost of credit is not always in the foreground. Often it is simply a matter of taking out a loan for debt restructuring in order to get a better overview of the current obligations or to keep the monthly charge to a minimum.
What happens when a debt is rescheduled?
Debt restructuring is basically nothing more than redeeming a loan with a loan. Some banks offer special debt rescheduling loans. This has the advantage for the borrower that he does not have to take care of the formalities connected with the debt restructuring.
For example, if you want to reschedule your car loan, you have to ask the lender for the transfer fee and apply for a new loan for exactly this amount. By choosing the term, the amount of the monthly rate can then be influenced. In this way, the existing loan can be settled with debt restructuring, but always with the consequence that a new loan then has to be repaid.
When debt restructuring makes sense
Many borrowers take out their loans spontaneously. First a washing machine is bought on credit, months later a new television and maybe even the vacation is financed with a loan. Consumers do not always make sure that they take out the loan on favorable terms, or at the time when the existing loans were taken out, there was generally a higher level of interest rates. If the existing loans are combined into a new loan with low interest rates, it may be possible to save on loan costs because less interest has to be paid overall than was previously the case.
However, debt rescheduling is sought much more often in order to only have a monthly rate that should be as low as possible than the sum of the previously payable rates. This type of debt restructuring is suitable for borrowers who find out in good time that they may have financially overstretched themselves or for whom the income situation changes negatively due to unemployment.
As long as the creditworthiness is given, a bank will grant the loan for debt rescheduling. Problems can arise, however, if there is no longer any creditworthiness due to unemployment. In such cases, it is difficult to find a bank that is ready to provide a debt rescheduling loan. If you have payment problems with existing loans because the financial situation has changed, you do not necessarily have to solve the problem with a new loan, but you can also contact the lender and let the loan stay there or the rates to a minimum by extending the term let lower.
When debt restructuring is not a solution
A debt rescheduling is also often considered when the debt has already grown completely over the borrowers’ head, when loans have already been canceled and matured or the child has already fallen into the well, so to speak. If you already have negative Credit Bureau information and are no longer creditworthy, you can hardly save anything with debt restructuring. In such cases it is better to get professional help in debtor advice from the experts.