Debt Consolidation: Increase loan during term
If additional funds are needed, bank customers can increase their credit during the term or, independently of this, take out a new loan. Increasing an existing loan is the simpler option of additional borrowing, with the degree of simplification varying according to the financial institution and the applicable awarding conditions.
Linguistically there is a distinction, according to which a credit increase always takes place at the previous bank, an increase, however, either at this or at another financial institution. Not only in the language of the consumers, but partly also in the advertising of the banks this differentiation is not consistently implemented.
The advantages and the course of the credit increase
Even though bank customers increase their existing credit during the term, they usually formally conclude a new loan agreement with the current bank. This results in a recalculation of the premium for the rate protection insurance, if the borrower has completed such. In the case of a credit increase, the calculation of a prepayment penalty does not normally take place despite the formal assessment of this measure as a premature repayment of the old loan and the assumption of a new loan.
There are different rules for increasing a current loan, depending on the bank. This is often possible only after the repayment of a significant portion of the original loan amount. Also regarding the amount of credit after topping up, fixed requirements apply. These amount to the original loan amount or to one and a half times the amount of this sum with many financial institutions.
Most bank clients assume that the bank will continue to charge them the previous interest rate if they increase an existing loan during the term. In fact, financial institutions tend to continue the current annual percentage rate of charge after the loan has been increased, when general interest rates have dropped since the initial loan has been paid, while they are happy to pass on an increase in interest rates. The other loan conditions, such as the right to an occasional installment suspension granted in some credit agreements and the possibility for free special repayments, usually do not change after the loan has been extended.
Increasing the current loan is convenient for the borrower as most financial institutions do not require re-submission of the full application documents. In any case, the repeated identification of the credit customer by means of the Postident procedure is not required. A private credit request, on the other hand, is part of routine loan increases, and internal creditworthiness also flows into the award decision. Advantageous for a successful application for a credit increase during the term is thus the punctual settlement of all previous credit installments. Whether a renewed presentation of a salary statement is required, if existing customers increase their credit during the term, regulate the individual banks differently.
A special form of increasing existing loans is the extension of a credit line in the bank account or the credit card account. For a larger discretionary credit is sufficient in most financial institutions, an informal letter to the house bank, which makes the decision mostly on the basis of accounting and the amounts received in the account , When increasing the limit on the credit card accounts, issuers who refrain from earning a credit on the original issue of the card and instead provide a small amount of disbursement usually request a current income receipt.
A private credit-free loan from Switzerland can basically also be increased during the term. As a rule, the Swiss banks presuppose the minimum repayment of half the original loan amount and increase the loan to the original amount of 3,500 or 5,000 euros. The private credit request as well as the announcement of the borrowing to the German credit protection is of course also omitted in case of a credit increase during the term.
Compare different offers
Although it is much easier to raise an existing loan during the term than to apply for a new loan, bank customers should not give up on a price comparison. The widespread belief among consumers that multiple credits that could be used compromised the scores in a private credit statement only applies to a high number of loans. An actual deterioration in the private credit score appears to occur when a consumer lends several loans within a short period of about six months.
If the previous bank refuses its client’s request to increase the current loan during its term, it can either take out an additional bank loan or prematurely replace the existing consumer loan via a rescheduling and link this debt rescheduling with an increase in total lending volume.