Anyone who is in debt can still take out a loan, although a distinction must be made between the repayment of the previous liabilities and a new loan. It is fundamentally not a concern that customers take out a new loan with existing liabilities.
Difficulties only arise if the obligations to service the existing liabilities and the new loan equally cannot be met. Consumer advocates also recommend that no more than one loan be taken out for consumption at the same time, while applying for multiple loans is considered acceptable for different long-term purchases such as real estate or vehicles needed to get to work.
Loans with existing liabilities and the Credit Bureau
In the case of high liabilities, there is a possibility that an applied loan with debts will be rejected after a Credit Bureau request has been carried out. In this case, borrowers can switch to Credit Bureau-free loans from Switzerland or Liechtenstein if they are convinced that they can service the loan properly. It is also important that a loan without Credit Bureau is regularly more expensive than a loan granted after a Credit Bureau request.
In many cases, neither Credit Bureau nor the credit institution carrying out the household bill knows that the customer has applied for a loan with debts. This applies particularly often if the existing liabilities are obligations from installment purchases, since traders often do not pass on agreed installment payments to Credit Bureau.
Actually, the customer has to list all existing liabilities in the loan application, but forgetting agreed installment payment contracts is largely common. In principle, the responsibility for the receipt of no more than the serviceable obligations lies with the borrower anyway. One way to facilitate repayment is to agree on the longest possible term for the new loan.
Combine the new loan with a replacement of existing liabilities?
Many customers not only take out another loan with debts, but also combine the new loan application with a replacement of the existing liabilities. To do this, they instruct the new lender to transfer only part of the loan requested to their checking account and to use the largest part to repay old liabilities. The new lender transfers the corresponding partial amounts directly to the previous creditors, for which purpose he receives a list of the liabilities to be paid by the customer.
Direct disbursement to previous lenders is essential for a loan with debts to replace old loans, as this is the only way for the new borrower to be sure that his customer will not take up the money contrary to what he says.
Do existing liabilities affect borrowing costs?
Existing debts worsen a borrower’s creditworthiness, so that they pay an above-average interest rate for a loan with debts if the bank calculates credit-related debit interest. This undesirable effect can be avoided if the applicant carries out a careful loan comparison before concluding a loan contract and decides on an inexpensive offer. If the existing debts consist of the use of an overdraft facility, the new loan even reduces the interest to be paid.