the corona crisis is changing our shopping behavior. Studies show that consumers have been refraining from making major purchases since the middle of last year. the fear of a financial shortfall is too great. But what really happens if you can no longer pay your credit or credit card bill??
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A layoff, short-time work, unexpected expenses, or even a corona-related switch from full-time to part-time at your job can put big gaps in your budget. If it becomes apparent that you will not be able to pay an installment on a loan or even the monthly credit card bill, the following applies: do not panic and address the problem.
There are different options. First, you should check how big the financial hole is and whether there will be an improvement in the next few months. If you have a short-term problem due to unexpected expenses, you can consider whether the overdraft facility on your bank account can fill this financial gap.
In the case of large financial holes, a conversation with the bank is absolutely helpful. Installment breaks, deferments, debt rescheduling and even residual debt insurance can help quickly.
Overdraft facility can help in the short term
- Example: suppose your car won’t start anymore. The garage charges 700 euros for repairs. You don’t have the money because you had to go on short-time work due to corona, which has already depleted your financial cushion. The dispokredit could quickly help here. The prerequisite, however, is that you are able to pay it back.
What I have to pay attention to?
Banks pay well for this offer. A dispo loan can cost up to 14 percent interest per year. If, for example, they have drawn down an average of 1000 euros, they will pay just under 140 euros in interest over the course of the year. By way of comparison, the average interest rate for an installment loan with a term of 48 months (four years) is currently less than 4.3 percent. This is the result of an evaluation by the independent financial consultancy FMH.
In addition, they must also repay the dispokredit and that means in turn that they must also step in the following months a little financially shorter. therefore reduce costs as quickly as possible. If you do not absolutely need certain subscriptions, insurances or even purchases, then pause or cancel them as quickly as possible.
It is common that the bank invites you to a conversation, if you slip over six months in a row in the minus, thereby at least 75 percent of the height of their framework with the dispokredit exhaust.
In this conversation the bank suggests how to save costs. For example, an installment loan can help to close the financial gap again without severe cuts.
Credit card with installment option can also help
Smaller sums can also be paid with a credit card. almost all banks also offer installment options on credit card purchases or credit card settlements. After successful registration, you can pay the outstanding amount in convenient monthly installments.
What do I have to pay attention to?
Such offers are usually much more favorable than the dispokredit, but it is still important to read the contract data carefully and also calculate the total costs you will incur.
Many banks call this service "partial payment" or "credit card stretching, because you pay a sum in several installments. interest rates are usually between five and 12 percent.
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I can no longer service my loan, what should I do??
If you can no longer pay your installment for the house or car loan, for example, because the overdraft facility has already been overstretched, the credit institution switches to reminder mode at the beginning and later to crisis mode.
Most banks will first send you a payment reminder by mail. If you ignore this, the first reminder follows. In most cases, processing fees are then due.
After the third reminder at the latest, the bank can terminate your loan agreement. the procedure is as follows: you will receive the reminder and an information letter threatening the termination and the consequences, at the same time you will receive a two-week grace period to transfer the outstanding installments.
If you do not pay this reminder either, the loan will be cancelled. You would then have to pay back the outstanding loan amount – including interest and any processing fees – in one fell swoop.
If the bank calls in a debt collection agency after the second reminder, it is advisable to seek debtor counseling quickly.
installment cannot be paid: what can i do??
If it becomes clear that you are in financial difficulties, you should talk to your bank. Together you can find possible solutions. Don’t worry: Strokes of fate are a part of life and there is a solution for everything.
Solution 1: residual debt insurance
If, for example, you have taken out residual debt insurance for your loan, this can take over the payment of the loan installment. You can activate the residual debt insurance if, for example, you have become unemployed through no fault of your own (e.g. due to corona) or are no longer able to work as a result of an accident.
The insurance company will (generally) pay the installments up to a period of 12 months. From the age of 13. You would then have to continue paying the loan yourself for the next month. The insurance company assumes that you have found a new job in the meantime.
CHIP advises: inform your bank about the residual debt insurance. In special cases, it can even take months until the first installment is actually transferred. For the transitional phase, you should therefore check whether an additional installment break would be possible.
Solution 2: take a break from the installments or let the installments be deferred
In the event of short-term financial problems, an installment break can help. During this time, you only pay the interest due. As soon as you are back on a secure (and solvent) footing, you can simply resume payment of the installments.
In the case of a deferred payment, you can suspend the installment completely for a maximum of two months. In most loans, such an option is already contractually guaranteed and also free of charge.
It is important, however, that you discuss the installment break or the installment deferral with your bank without fail. Consumers cannot simply stop the installment, the bank must first be informed and give its approval. In addition, your advisor can ask for the reasons and, in some cases, request supporting documents.
Solution 3: Reduce the rate or reschedule the debt
if your monthly income slides down over a longer period of time, it helps if you extend the outstanding loan amount over a longer period of time and thus push the rate down as well. In addition, you can also reduce interest rates by rescheduling your debt.
- Example: you have actually had a fixed monthly salary of 1.600 euro had. Because you can work less hours due to corona, you will now only receive 1.200 euros and sometimes even less than 1.100 euro. But you can’t pay your monthly installment for a private loan of 400 euros with it. Actually, the loan would be paid off in ten months. What to do?
Solution: you can cut the rate in half. For example, you will then pay 200 euros every month. However, this means that you will have to continue paying the outstanding loan amount for about two more years (including interest).
A debt restructuring is worthwhile if you pay off one or more loans and pay different interest rates for them. you take out a new loan (with more favorable conditions) and pay off the old loan with it. In this case, they can not only set more favorable interest rates, but also lower monthly installments.
CHIP advises: interest rates have fallen sharply in recent years. This makes a debt restructuring more worthwhile than a simple reduction of the monthly rate.
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Beware of "fast" loans and "unbureaucratic solutions"
Consumer advocates warn. Especially in times of corona, the offers of credit intermediaries have increased, offering "unbureaucratic help" or "credit-free" credit advertising.
the consumer advice center schleswig-holstein warns: such offers often result in additional costs and in the end the mountain of debt is only bigger.