Credit with Debt – Borrowing and debt restructuring
It is not uncommon for consumers to take out a loan, even though they already have debts, especially since existing debt does not necessarily preclude further borrowing. A distinction must be made between further borrowing and debt restructuring, whereby both measures can also be combined.
Another borrowing while existing debt
Many consumers order goods from several mail order companies at the same time or within short time intervals on a part-payment basis. Since installment payments are also to be regarded as loans, they take out a loan with debts in this way. In addition, most private households at least occasionally use the overdraft facility of their checking account or the scope of a checking card. If you apply for an installment loan despite using a mortgage, you do not always see it as an application for a loan with debt. The Credit Bureau information does not contain any information about the actual use of a credit facility or a credit limit on the card account, but only data about the amount granted.
If, on the other hand, consumers apply for a second installment loan, the new lender learns about the existing liabilities from the credit report and also takes the corresponding loan installments into account in his household bill. If the household income is sufficient to repay several liabilities, there is nothing to prevent another loan with debts. Thanks to the particularly low debit interest rates for car loans, the second loan from households is common, especially when it comes to vehicle financing.
The same effect occurs with real estate financing. If you have difficulty taking out an additional loan, you can apply for a loan without Credit Bureau through a Swiss bank, but you must then check your ability to repay several loan obligations yourself. Consumer advocates recommend that multiple loans should not be used for consumption but only for the necessary purchases. Thus, further borrowing is sensible for the replacement of a defective washing machine, while a costly vacation trip is better booked only after the existing liabilities have been repaid.
Credit for rescheduling existing customers
In addition to planned further purchases, planned rescheduling is often a reason to apply for a loan with debts. In this case, the new loan amount serves to replace existing liabilities. Taking out a loan with debts to replace existing liabilities makes sense if the interest rate decreases compared to the previous loans. This almost always applies when the overdraft facility is repaid as well as when the credit card account is fully settled.
The new lender does not transfer the amount intended for the repayment of an installment loan contract to the borrower’s checking account, but directly to the previous credit account to be specified. This procedure can only be used for credit cards if the issuer allows third-party deposits into the card account, otherwise the corresponding partial loan amount is transferred as well as an increase to the borrower’s checking account associated with the redemption.