Top up credit – possible at any time?
Anyone planning larger purchases often finances them with a loan. In some cases, however, it can happen that after taking out the loan, you notice that the loan amount is not sufficient for the project. This can be the case, for example, in the event of unexpected renovation costs.
At this moment, many borrowers are considering an increase in the loan. In this article, we clarify whether a credit increase is possible at any time and what should be considered.
What does a credit increase mean?
If a loan is to be increased, this means that the existing loan amount is increased. This option can be used for a variety of reasons, for example for the following situations:
- necessary repairs in the household or on the car
- New purchases of large electronic devices such as washing machines or refrigerators
- necessary purchases for the equipment for young families
- unexpected cost increases for renovations or conversions and extensions to the house
- other unexpected expenses that cannot be covered by income
What are the requirements for a credit increase?
As with the granting of a loan, certain prerequisites must also be met to top up a loan. Only in this way can the lending bank be sure that they will get their money back. The requirements are:
- A positive credit rating must be proven using a credit query.
- The income must be sufficient to cover the credit rate in addition to the cost of living.
- There must be no excessive debt.
- Previous credit installments must always have been paid properly.
- There must be a registered place of residence in the country.
- The income situation will not deteriorate in the future.
When can a loan be increased?
In principle, it is possible to top up an existing personal loan at any time. However, it is important to comply with special regulations for this at many banks. Some lenders stipulate in their terms and conditions that after borrowing, a certain time must pass before a loan can be topped up. In many cases, this period is six months after the first loan payment.
This procedure has the following background: If, for example, you want to increase the loan amount just three weeks after borrowing, the bank sees this as a sign that you cannot correctly calculate the money. On the other hand, after such a short time, no repayment installment has probably been paid, so the bank cannot be sure that it will get its money back as agreed. The blocking period for a credit increase, as is common for many banks, is used to prove your reliability.
How often can a loan be increased?
There is no general regulation for this either. Basically, you can top up your existing loan an unlimited number of times. The prerequisite for this is always that the points mentioned above are met and, above all, that household income allows the new loan installment to be further burdened.
How much does a loan increase cost?
The costs of financing are always made up of interest and any additional fees. According to a judgment by the Higher Regional Court, no additional fees may be charged for increasing an existing loan. Exceptions to this rule are only permitted as follows:
- when the collateral required for the loan is revalued
- if the value of the property has to be re-determined for a mortgage loan
- if a further entry in the land register is necessary for a real estate loan
- if additional products are taken out at the same time as the credit increase, for example a residual debt insurance
Interest rates for topping up a loan can also change. If an existing loan is increased, the agreed interest rate for the existing loan amount remains. The current interest rate is used as the basis for the amount of the increase. Overall, a loan with a mixed interest rate is created.
Secure a lower interest rate through debt restructuring
Instead of increasing a loan, you can of course also take out a new loan and thus reschedule the old loan. Under certain circumstances, you can secure better interest on the total loan amount than would be possible with the calculation of a mixed interest. This can save several hundred or a thousand dollars. Of course, this only makes sense if the current interest rate offered is lower than when the existing loan was taken out.
Conclusion on the credit increase
A credit increase is generally possible at any time. In practice, however, many lending banks impose lock-up periods after borrowing to check the reliability of the borrower. If the reliability has already been proven and the creditworthiness and income ratios are correct, the loan can be increased several times.
If the increase in an existing installment loan is rejected, you can look at other banks for a new loan. If another provider offers a better interest rate than your previous lender, it makes sense to reschedule the entire loan in order to save costs. Basically, you should ask yourself the following questions before taking out or increasing a loan:
- Do I really need the money?
- Can I pay the monthly installment over the entire term?
You should allow for an appropriate buffer for unforeseen events in your own finances, especially when it comes to the repayment rate. So you can be sure that the loan rate does not endanger your existence. If the credit installment can no longer be paid at some point, additional costs quickly arise from dunning and collection procedures. In addition, your credit rating deteriorates dramatically, which greatly limits the chance of loans in the future.