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Prolongation

The term "prolongation" is used in the lending industry, particularly in the case of construction financing. It refers to the extension of the term of a loan agreement by the same credit institution. This type of follow-up financing can be very costly, CF Finanz will inform you about how it works and an alternative way to save on interest expenses.

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What does prolongation mean?

The term is derived from the Latin word "prolungare" (to extend). It describes the process of extending the term of a building loan. After the fixed-interest period has expired, the conditions for the loan amount not yet repaid must be regulated with so-called follow-up financing. Once the fixed-interest period has expired, a follow-up loan agreement must be concluded. The customer either receives an offer from their previous bank to continue the loan or another bank takes over the mortgage. This is referred to as rescheduling the loan.
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What is the difference to debt rescheduling?

In the case of a prolongation, only the interest conditions, fixed borrowing rate and borrowing rate are redefined. All other loan conditions, such as the repayment, are taken over from the old loan agreement. In the case of debt rescheduling, another financial institution is prepared to continue financing the remaining debt from the mortgage. As the debt is rescheduled with a new commercial bank, all conditions of the loan agreement can be renegotiated.
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How does the loan prolongation work?

The current lender is obliged to inform the borrower whether and on what terms it is prepared to continue the building loan. This must be done at least 3 months before the fixed interest period expires and is done with a written offer from the bank. However, banks are not obliged to continue the loan.
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Why can debt rescheduling be more favourable?

Customers have approx. 14 days to accept the renewal offer. They must sign and return the contract documents within this period. It pays to think about extending the loan at an early stage. If borrowers obtain other offers and compare them, they can save considerable costs. House banks assume that they do not have to offer better interest rates because customers are reluctant to switch or are under time pressure to obtain a new loan offer in time. Loan prolongation is only worthwhile if the market interest rates have not changed and the borrowers originally found it difficult to find a lender.

What are the advantages?

A prolongation can be managed easily and without great effort. It saves loan customers a great deal of time and their creditworthiness does not have to be checked again. The offer from the previous financing institution simply needs to be signed and no new documents need to be submitted. The contractual partner remains a familiar institution, the so-called house bank, and there is no need to change contact persons. There are also no additional fees, for example for a new land register entry. However, there are serious disadvantages.

What are the disadvantages?

There is usually no room for negotiation with the old lender. The conditions are set by the house bank and are generally worse than those of other banks. The other contractual conditions remain the same and must still be accepted by the borrower.

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