Refinancing a loan in Germany: when it pays off and how to calculate it
When checking refinancing, weigh the outstanding balance, settlement costs and the old loan's remaining cost against the new loan's total cost.
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A lower monthly repayment can come at a high price if it is bought with a longer term. Compare the costs still outstanding on the old loan with all costs of the new loan.
In short: Refinancing (Umschuldung) pays off if all costs of the new loan – including the early repayment charge – are lower than the payments still outstanding on the old loan. For consumer instalment loans, the early repayment charge is capped by law at 1 % of the outstanding amount (0.5 % if less than one year remains). Refinancing an expensive overdraft is particularly often worth it.
The right basis for comparison
You need the current outstanding balance, the remaining instalments, any early repayment compensation and all costs of the new loan.
- Settlement amount on the cut-off date
- Sum of the remaining payments on the old loan
- New repayment and new term
- One-off settlement or brokerage costs
Worked example: does refinancing pay off?
Suppose you still owe €10,000 and have 36 instalments of €320 left – equivalent to an APR of just under 10 %. A new loan costs 6 % APR over the same term.
| Item | Old loan | New loan |
|---|---|---|
| Amount to be repaid | – | €10,000 |
| Early repayment charge (1 %) | – | €100 |
| Monthly instalment | €320.00 | €306.53 |
| Total of all remaining payments | €11,520 | €11,035 |
In this example, refinancing saves around €485 – even though repaying the old loan early costs €100. The key is keeping the same term. If you extend it, the instalment drops but the saving can quickly disappear. Use the refinancing calculator to work through your own figures.
What repaying the old loan early may cost
You can repay a consumer loan in Germany in full or in part at any time (section 500 BGB). If the borrowing rate is fixed, the bank may charge an early repayment fee (Vorfälligkeitsentschädigung) – but for instalment loans no more than (section 502 BGB):
- 1 % of the amount repaid early if more than one year of the term remains,
- 0.5 % if no more than one year remains,
- and never more than the interest you would have paid until the regular end of the loan.
If the contract lacks details on the term, your right to terminate or how the charge is calculated, no charge may be made at all. More in our guide to the early repayment charge.
How refinancing works
- Request the settlement amount: Ask your bank for the exact amount on a specific date, including any charge, in writing.
- Compare offers: Get offers for the same amount and the same term. Condition enquiries (Konditionsanfragen) do not affect your Schufa credit score.
- Compare total costs: Remaining payments on the old loan against all payments on the new one – not just the instalments.
- Take out the new loan: Many banks pay off the old loan directly. Take your time with the contract – you have a 14-day right of withdrawal.
- Check it is closed: Make sure the old loan has been fully repaid and no direct debit is still running.
Special case: refinancing an overdraft
Overdraft interest (Dispozinsen) is usually considerably higher than the interest on an instalment loan. If you are permanently overdrawn, you are therefore often paying far too much. An instalment loan with a fixed term also makes you repay the debt. Our loan vs overdraft calculator shows how big the difference is with your figures. Important: after refinancing, do not run up the overdraft again.
Separate liquidity from cost
A lower repayment can help in the short term even though the financing becomes more expensive overall. Name this goal consciously before you decide.
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Frequently asked questions
When is refinancing worthwhile?
In numerical terms it pays off when all costs of the new loan, including settlement and incidental costs, are lower than the costs still outstanding on the old loan. The yardstick is therefore the difference in remaining costs, not the size of the new monthly repayment. A longer new term can lower the repayment and still increase the total cost.
What information do I need for refinancing?
You need the current settlement amount of the existing loan, the number and size of the remaining instalments, and any fees or early repayment compensation (Vorfälligkeitsentschädigung). Your current lender states these figures in a settlement statement (Ablösebescheinigung). Only then can a new offer be reliably set against them.
Can I combine several loans into one?
Several running loans can in principle be bundled into one. This makes them easier to manage and can change your monthly burden; what matters, though, is whether the sum of all costs is lower afterwards. If extra money for new purchases is financed on top, it is no longer refinancing but new borrowing.
How high can the early repayment charge be on an instalment loan?
No more than 1 % of the amount repaid early, or 0.5 % if no more than one year of the term remains. It may also not exceed the interest that would have been due until the regular end of the loan (section 502 BGB). No charge may be made on a variable interest rate.
Is it worth refinancing an overdraft?
Often, yes, because overdraft interest is usually much higher than the interest on an instalment loan. It makes particular sense if you are permanently overdrawn. To keep the saving, you should not use the overdraft again afterwards.
Does refinancing hurt my Schufa credit score?
Condition enquiries for comparing offers are neutral for your score. The new loan is reported and the old one is listed as settled once it has been repaid. Problems are more likely if you make many credit applications instead of condition enquiries or take on additional debt.