A long-term financing is only issued for a limited period at a contractually agreed interest rate. Whether it is a fixed interest rate or a variable rate is irrelevant – it is relevant that these conditions are not fixed for the entire term of the loan.
For example, for a real estate loan with a term of 25 years, it is customary to renegotiate the interest conditions after ten years. Since it is up to the borrower to continue lending via the current lending institution or to look for a new financial partner, follow-up financing has enormous potential for savings.
What is termed follow-up financing?
The term follow-up financing basically simply names the renegotiation of interest rates within a current loan. He is not to be confused with a debt restructuring. Further contractual terms, such as the remaining term or special repayment clauses, are not observed in subsequent financing.
However, since it is enshrined by the legislature that a loan can be terminated at any time by the borrower after ten years, many consumers take this opportunity to improve the overall conditions for the remaining loan.
Types of follow-up financing
The follow-up financing is therefore divided into two types. Experts speak of the so-called “real follow-up financing” and of the “improper follow-up financing”:
- In the case of genuine follow-up financing, the loan remains with the original lender. The general framework conditions of the current loan remain. The loan is renegotiated only in terms of interest rates. It is possible to convert a fixed interest rate into a variable interest rate and vice versa.
- The phony follow-up financing terminates the existing loan agreement and the remainder will be funded through a new loan product. This debt restructuring can be implemented in various forms. Since debt rescheduling can be very complex, it is important to be well informed before signing the contract. Incorrect planning can cause unnecessary extra costs.
Who helps you with follow-up financing?
The first way should always lead the consumer to the current financial partner. There, all relevant information must be requested:
- Possible interest rates
- Future rates
- Rescheduling on alternative products
Armed with these facts, you can get more offers. Comparison portals like Smava make it easy to compare current credit products. Furthermore, all relevant information on the subject can be found on specialized websites.
Tip: After a detailed online research submit the offers of the competition of the house bank. Often they are able to adjust the offered Erstkonditionen.
Correct follow-up financing
The topic follow-up financing is quite complex. Consumers have the choice to go several ways for funding. It is important that follow-up financing takes the individual financial circumstances into account as best as possible. Cheap interest rates alone should not be the main focus for the choice of the loan.
Follow-up financing during the repayment period
If you are still within the contractually agreed interest rate, it may be financially reasonable in some circumstances to replace the existing loan with another financial product.
The current loan will be terminated and the remaining debt will be covered by a new loan. However, this rescheduling makes sense only if the total cost of the loan cancellation and the new loan financing below the cost of regular loan payment. So there are several factors to consider:
- How much is the cancellation of the current loan?
- What does the new loan cost? – Consider all costs!
- What would the first loan cost at normal maturity?
Rescheduling usually only makes sense if the general market interest rate has declined noticeably in recent years. For example, if the loan was taken out of a high interest rate phase, debt restructuring can make a significant difference to the monthly installments. However, if the interest rate has risen in recent years, a debt restructuring would increase the monthly burden.
Follow-up financing at the end of the repayment term
When the end of the interest-linked credit period is over, banks automatically contact customers. The goal is to implement a follow-up financing within the existing product. To make this as interesting as possible for the customer, there are various offers. Depending on the current market interest rate, an adjustment of the interest rate is made.
Ideally, it is below the current interest rate. This automatically brings a monthly savings for installments. But also the calculation basis for the interest is changed. Because part of the original loan amount has already been paid. The new interest rate is therefore calculated on a smaller amount, and it is possible to work with a better eradication. If desired, this can minimize the term of the loan for the remaining debt.
Follow-up financing through forward loans
A special case is the forward loan. This loan works at a fixed interest rate over the entire repayment term. It is therefore very suitable in times of very low interest rates. The peculiarity of this form of loan is that the contract can be concluded up to 36 months before payment of the loan.
If, therefore, it can be assumed that a low interest rate will rise in the coming years, the forward loan secures the good interest rate conditions. The further ahead the forward loan is concluded, the worse the interest conditions compared to the actual market interest rate. It is therefore important to choose wisely when the best time to conclude a contract is.
Follow-up financing – the conditions in comparison
Whether as part of follow-on financing or for the inclusion of a classic installment loan: It is always relevant to compare the current terms of the financial products. Above all, the monthly installment – if this is not chosen correctly, a financial shortage can quickly lead to financial ruin. But also other factors have to be considered:
- running time
- interest rate
- deferral options
A loan calculator is best suited for this. By specifying a few key figures, the right loan can be quickly filtered out of hundreds of offers.
Questions about follow-up financing
Follow-up financing: what documents are required?
The specific documents needed depend on the type of funding. If the credit remains with the house bank, it is often not necessary to submit further documents. For a fake follow-up financing with a new lender, the following documents are often required:
- identification documents
- proof of income
- Existing credit agreement
- Permission for credit check
For certain groups of people such as self-employed or pensioners, further documents can be requested.
When should I plan a follow-up financing?
It pays to be active early. Especially if the current interest rate is at a low. With a forward loan, the favorable conditions for follow-up financing can be secured up to 36 months before the end of the term. In addition, it is possible to choose a suitable product without stress and make a comprehensive credit comparison.
What does a follow-up financing cost?
A good follow-up financing does not cause any extra costs. The aim of the financing is to repay the remaining debt more cheaply than is possible with the initial financing. The costs incurred for a rescheduling or a new interest will be covered accordingly by the new repayment. It is accordingly not necessary to spend extra capital for follow-up financing.
For what amount is a follow-up financing suitable?
If the first loan has been approved for the sum taken up, there are seldom any problems with financing the remaining debt. If the financial situation has not drastically changed to the negative, it is therefore of little relevance for which amount the follow-up financing is needed.
However, it should be sufficient for the entire remaining debt. Note Partial payments of the remaining debt are possible in the context of a special repayment. Whether costs are incurred and the amount of these charges is regulated by a corresponding clause in the credit agreement.
Follow-up financing – conclusion
If you plan your follow-up financing in good time, you can use a huge savings potential. As real follow-up financing or debt rescheduling – there are many ways to improve credit conditions. Often, good follow-up financing provides a noticeable relief to the monthly financial burden.