Payment in installments, overdraft facility from a checking account – debts easily accumulate in very different places. As a result, the debtor not only quickly loses the overview, but often also pays too much. There are different reasons for this: First, small loans are always more expensive than loans with larger sums because of the one-off fees. In addition, the interest rates, especially for overdrafts, are significantly higher than for a conventional installment loan. Depending on the bank, up to 20% APR may be due if the current account is overdrawn. The remedy is a cheap debt reduction loan.
Installment loan for debt reduction mostly cheaper
In contrast, an installment loan has various advantages: the interest rate is noticeably lower. For a loan with a loan amount of around 10,000 USD, depending on the creditworthiness, around 7 to 8% APR is due – compared to the overdraft facility and many installments, this is only half. In addition, the debt situation is also much clearer for the debtor. This enables much easier financial planning and prevents the borrower from over-indebtedness.
Children: A disadvantage for creditworthiness
However, in order for such a loan to be able to reduce debt, the debtor must meet a number of requirements. Sufficient creditworthiness must first be proven. The monthly income is decisive for this. In addition, however, it is also important how the monthly costs are. For example, if there are children who also live on the debtor’s income, this has a negative impact on creditworthiness. This is due on the one hand to the higher monthly costs, but also to the fact that this changes the legal seizure exemptions. It will therefore be more difficult for the bank to seize the salary if the debtor no longer pays the installments for the loan. In addition, other fixed costs, such as the amount of the rent, are queried in order to assess whether there is sufficient scope at all to be able to repay the loan to reduce the debt.
Many installment loans: Loan to reduce debt can be rejected
If the income is high enough to get a loan to reduce debt, an important requirement has already been met – but not the only one. A negative entry at credit checker usually ensures that the loan is rejected in any case. Other loan commitments can also cause the bank to reject the loan for fear of over-indebtedness. In any case, the application should also state that the new loan serves to replace other payment obligations. Age can also ensure that such a loan is rejected: anyone under the age of 18 does not receive a loan, but from around 58 years of age there can also be negative feedback.