Out of the debt trap: Dispo convert into installment loan
Berlin – bank overdrafts often pay high interest rates for overdrafts. Anyone who is in the garbage with several thousand euros, therefore better convert the bad debt loan into a cheaper installment loan. With more than twelve percent interest on average, the MRP is the most expensive type of loan and is only suitable for short-term financial bottlenecks and smaller amounts, says Christina Buchmüller, financial expert of the Association of Consumer Organizations (vzbv) in Berlin. If, on the other hand, a customer suffers a large amount of money, he or she may easily over-borrow with a credit line.
“Due to the high lending rates, there is a risk that his monthly income will no longer be able to reduce his liabilities,” warns Buchmüller. A installment loan, however, is much cheaper and easier to manage: “You can arrange the term individually and set the burden of concrete from the beginning.” In the best case, the interest rates are three to five percent.
However, financial institutions often refused to reclassify to a cheaper installment loan. “They earn more at the credit line, which is the most lucrative model for the banks,” explains Buchmüller. The consumer advocate advises, nevertheless, not to let go and to remind the bank of its responsibility in the lending business.
If the change succeeds, one should take care not to conclude expensive additional contracts. According to Buchmüller, many banks are trying to compensate for interest losses by selling residual debt insurance, for example. Often, consumers would then be financially even worse off.
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