There are moments in life when you have too much of everything: especially too many bills! Every day, new bills flutter into the house and the borrowed credit continues to shrink. But the boss is delaying the salary increase. What now? Can you increase the existing credit? Or is it more advantageous to take out a new loan? And by what criteria can one make a decision?

All facts about the guide “Credit increase” at a glance:

  • Increases may be necessary due to house construction, renovations, accidents, natural disasters or new life perspectives.
  • The loan is a long-term loan.
  • The loan conditions may change due to fluctuating interest rates, advancing age and changed living conditions.
  • The situation decides to raise a loan or new loan.

1. 5 reasons that may necessitate an increase

1. 5 reasons that may necessitate an increase

Case 1: The house construction

The decision is: A house is being built! The loan agreement was approved and a credit line is set in consultation with the architect and site manager. The purchase of the property works smoothly. But already when pouring the foundation, the first problems occur. End of the song: The actually generous loan suddenly gets pretty tight.

Case 2: The renovation

A young couple buys a condominium in an Art Nouveau villa, which underwent an all-round renovation in the 1990s. The loan will be added to the purchase price plus a buffer for minor renovations and new furniture. Unfortunately, none of the participants had noticed that for a long time the good wood parquet had been flooded underground due to a hairline crack in the water pipe. The floor and load-bearing beams, which have become rotten over time, must be completely renovated.

Case 3: Accidents

The loan was planned correctly and all unpredictability still fit in the budget. Two weeks after moving into the home, the disaster happened: The daughter injured in sports and ends up in a wheelchair. In addition to the human tragedy now the entire house has to be rebuilt wheelchair-accessible. Of course, for reasons of economy in advance had been waived to conclude a corresponding accident insurance.

Case 4: natural disasters

Many homeowners in Germany are insured against floods. But what happens when a rarer natural phenomenon breaks through Germany? A whirlwind or an earthquake? Of course, then quickly by relief funds for those affected talk and some insurance companies have not excluded these disasters. However, it usually takes years for these payments to reach those concerned.

Case 5: A New Life Perspective

Five reasons for a credit increase

There are many different reasons why the life perspective can suddenly change. The employee changes into self-employment, the divorced woman divorces or the newly in love couple unexpectedly gets offspring. Decisions or circumstances that turn life on its head from now on.

While self-employment rarely comes across unprepared, the other two cases can be extremely unprepared for one. There is a need for quick help. For more information on loans in these life situations, see the guidebooks “Credit in Divorce”, “Credit for Business Start-Ups”, “Credit in Parental Leave”.

There are many reasons why a loan is increased and this is necessary. All cases have something in common, something unforeseen happened that was hard to calculate in advance.

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2. What is the difference between credit and loan?

When is a loan a loan?

Loan is a sub-form of the loan. Loans can be broken down into short-term, medium-term and long-term loans. Long-term loans are also referred to as loans. These, in turn, can be differentiated into annuity loans, term loans, term loans, equity loans, rolling money market loans and repayment loans. You can find more information about the different loans and the difference between loans and loans in the “Credit or Loan” guidebook.

3. How can the loan terms change?

No other area is as fast-paced as the financial world. Within minutes, prices can plummet, entire states are in danger of bankruptcy and millions of homeowners lose their belongings in one fell swoop.

Many loans work with fixed interest rates. As a result, the effective interest rate over a longer period of time is independent of the global market situation. This can be positive for the borrower, but in some times quite annoying. And that is when the general interest rate falls and the own loan rate remains fixed at eight or nine percent.

The market interest rate depends on many factors, which in turn can, but do not have to, influence one another. Exactly this fact makes a reliable forecast so difficult. Interest rates inevitably change over time as we live in a dynamic world. Furthermore, the starting situation of the borrower also changes. Especially with long-term loans, the expected retirement is included. With advancing age, the interval of employment decreases and thus also the conditions for a credit agreement.

In addition, there is the potential risk of chronic diseases. Although these rarely require an increase in the loan, they can permanently affect the creditworthiness of the borrower. Thanks to medical confidentiality, however, such factors are difficult to understand for the lenders. In addition, over the years, additional assets can be accumulated, which is why the borrower would be able to receive various special conditions. He has proven to some extent that he is able to save more money despite the ongoing loan payments.

Process arrow showing the change in conditions

Factors that influence the change of credit conditions

Changing lending conditions over time is a fact. It always has to be weighed whether they develop to their own advantage or disadvantage. The causes are manifold and personal development can also play a role. It is advisable in any case in advance to obtain extensive inquiries.

4. Which is better? Increase or complete a new loan?

4. Which is better? Increase or complete a new loan?

The conditions influence the decision

A blanket statement whether to increase a credit or whether better to conclude a new credit is can not be made. In times of low interest rates and long-term loans, it is better to take out a new loan to take advantage of the favorable economic situation. Be the other way around banks avoid in times of high interest rates, of course, want to increase low-interest loans from the past. Here will be trying to complete a new loan with higher effective interest.

However, it raises the question of how much voice the borrower has here. Is he creditworthy with a loan in progress? Would he possibly get another loan from another bank? Or is he forced to play on the terms of the lender?

Of course, it is always advisable to organize your finances in such a way that you yourself benefit the most from the bottom line. However, this is not possible in all cases. In any case, it is advisable to inform yourself in advance about all options and to consider several lenders.

5. The conclusion: increase credit if the conditions are right

If it is determined that it is unavoidable to borrow new money again, all options should be well balanced. It is important to inquire how conditions change when a loan is increased. Here, it is important to pay attention to the effective interest rates, whether the installment payments are extended or the amount of the monthly payments increases. Repayment terms and special conditions should also be considered.

Even if the conditions remain the same, it is worthwhile to obtain offers from other providers, especially in times of low interest rates. In addition, alternatives can also be requested from the actual provider. In addition to the opportunities to increase your existing loan or to take out a new loan, there is also the possibility to reclassify loans. No matter which way you go on the search, the facts must be comparable in the end. In spite of all rationality, it must not be forgotten that one’s own life can constantly change. Therefore, there should always be some flexibility in the credit agreements. Have you also raised your credit and gained credit experience?