Debt restructuring of a loan

Consideration of costs when rescheduling a loan

Consideration of costs when rescheduling a loan

The often communicated aspect of perhaps lower interest rates due to debt rescheduling is overrated. It can still take hold, but is by no means the main motive for the debt restructuring. This consists in reducing the monthly load (see above).

Cost examples of loan:

Cost examples of loan:

  • An earlier loan at an interest rate of 4.5% should be repaid for three years with a remaining amount of 10,000 USD. The monthly rate for this is 297.47 USD, which is too high for the borrower. The interest costs 708.89 USD with a three-year repayment. When rescheduling the loan, a repayment over six years is now agreed at the same interest rate. The monthly rate drops to $ 158.74, but the interest costs rise to $ 1,429.30.
  • An earlier loan at an interest rate of 4.5% should be repaid for three years with a remaining amount of 10,000 USD. The monthly rate for this is 297.47 USD, which is too high for the borrower. The interest costs 708.89 USD with a three-year repayment. When rescheduling the loan, a repayment over six years is now agreed at a lower interest rate of 3.0% (new creditor, better market situation). The monthly rate drops to 151.94 USD, but the interest costs still rise slightly to 939.45 USD. They could be reduced to 781.21 USD by shortening the repayment period to five years, and the monthly rate would be 179.69 USD.
  • An earlier loan at an interest rate of 4.5% should be repaid for three years with a remaining amount of 10,000 USD. The monthly rate for this is 297.47 USD, which is too high for the borrower. The interest costs 708.89 USD with a three-year repayment. In the meantime, the debtor has been charged with a negative Credit Bureau entry due to reminders and attempts to enforce it. The debt can only be rescheduled by a financial intermediary at a much higher interest rate of 9.5%. Again, a six-year repayment period is agreed, the monthly installment drops to $ 182.75, but the costs increase to $ 3,157.78.
  • An overdraft facility with a negative balance of 2,500 USD will be rescheduled. For the ideal calculation, it should be assumed that nothing will happen to the account (no incoming payments, no debits or withdrawals), the account holder now has another account and only pays the interest for the overdraft facility, so as not to fall into the tolerated overdraft area to guess. With an interest rate of 13.00%, the interest costs amount to 325 USD per year, the account holder pays them quarterly with the debit (always 81.25 USD). In three years, the interest will cost 975 USD. Debt rescheduling is agreed with the bank. This costs 4.5% interest, the term should be three years. At a monthly rate of 74.37 USD, the interest costs for the installment loan are 177.22 USD, so the borrower / account holder has saved a lot. In addition, he gets rid of the negative balance, which he might have financed forever.

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