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(LOZ). Job loss, short-time work or unexpected expenses can tear large gaps in the budget. If the account is already deep in the red and there is no longer enough money for ongoing loan installments, it is high time to act. Talking to the bank can often find a solution and avoid over-indebtedness.
A checking account with an overdraft facility allows financial leeway: Account holders can use it to overdraw their checking account up to the agreed limit. The limit is usually two or three months’ salary. These debts can be repaid flexibly, but that can take a long time, especially with low incomes. Banks can also pay for this service well. The overdraft facility costs up to 14 percent interest per year. It is therefore at most suitable to bridge a financial bottleneck until the next salary is received.
The situation is different if the account is permanently overdrawn. “Some account holders get used to dragging on these debts for months or years without reducing them,” says Michael Herte, consultant for financial services at the consumer advice center Schleswig-Holstein. Anyone who uses an average of EUR 2,000 overdraft facility over a year pays around EUR 280 just for interest at an interest rate of 14 percent.
Exchange overdraft facility for an installment loan
In such cases, an installment loan can be the way out. Installment loans are less flexible, but cheaper. The borrower saves interest and can set the installments and the repayment period himself. Banks are obliged to advise their customers on reducing debt in certain situations. For example, if an account holder uses up an average of 75 percent of his overdraft facility for more than six months, the bank must offer a consultation (Section 504a BGB). However, caution is advised: If the installment loan from the house bank also provides for high interest rates or is even combined with residual debt insurance, it can be even more expensive. “In such cases, it is best for those affected to obtain offers from other banks and compare the loan agreements critically,” recommends Michael Herte. The consumer advice center offers support and independent advice.
When there is not enough money for the loan installments
Anyone who has to repay a current loan and falls behind with the installments should act quickly and speak to the bank. “With general consumer loans, there is often the option of agreeing a longer term and smaller monthly installments,” says Herte. If unemployment or illness are the reason for the financial distress, it is worthwhile to see if the loan is one Payment protection insurance was completed. These insurances are intended to protect borrowers in the event that they are unable to pay loan installments – for example due to job loss, prolonged illness or death. Payment protection insurance is often expensive and increase the cost of financing significantly, but in some cases those affected by the Corona crisis can claim the services and benefit from them.
Be careful with “Schufa-free loans”
Caution is advised with credit intermediaries who advertise with “unbureaucratic help” or “Schufa-free” loans. “You can’t rely on that, instead there are often additional costs and in the end the mountain of debt is only bigger,” warns the financial advisor. Provide real assistance with debt problems public debt counseling centers and the Advice to the consumer advice center.
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