Most certainly know that nowadays, borrowing money is easy and fast. In addition to this, the terms of the current loans are also really good.In this blog post, we thought of dealing with such a thing as premature loan repayment.
Today, the loan can be repaid earlier than specified in the loan agreement and, in the case of most loan products, even without incurring any additional costs for the borrower.
Can the loan be repaid prematurely?
Indeed, for many, it may come as a surprise that early loan repayment is possible, as many lenders may have mortgages and their loan terms in mind.
In the case of mortgages, the conditions are different from those of, for example, consumer credit. The bank may charge compensation for the early repayment of a mortgage in a situation where the loan has been granted for more than $ 20 000 and the loan has a fixed interest rate, or the reference interest rate has a fixed interest period of 3 years or more.
Of course, most mortgages are over € 20,000, so they are also subject to that law.
However, when it comes to loans applied for online, the same rules do not apply. For example, in the case of consumer credit, the borrower can pay off the entire amount prematurely without incurring any additional costs for him.
However, it is worth noting that you should always read your loan agreement carefully. If you wish, you can also discuss the matter with the customer support of the lending place. There is also knowledge of the lender’s policy in the event of early repayment.
The financial situation may change during the loan period
It is absolutely great that current lenders allow for early repayment of a loan, as anyone’s financial situation may change during the loan period. In other words, the financial situation can also improve considerably, and in such a situation it may be wise to repay the loan taken out in full.
In fact, early repayment of credit is a statutory right of the borrower and does not even need to be specifically mentioned in the credit terms. For this reason, early repayment of the loan or making additional loan repayments is possible.
The loan amount will, of course, decrease faster if a slightly larger amount is repaid each month.
Premature loan repayment reduces loan costs
When the loan amount decreases faster, it also means that the loan also becomes less interest-bearing and expense-paying. In a situation where the financial situation improves during the loan period, so that there would be the possibility of additional payments or even full repayment of the loan, then it is really worth seriously considering it as well. Usually, this saves the borrower a long penny.
Although loans applied for online usually do not amount to as much as, for example, mortgages, today they can still be applied for up to several tens of thousands of euros. The payback period is also available well, i.e. up to decades. This means that the loan applicant has been committed to the loan for several years.
As has been said, life hurts and happens and if one thinks that the loan period is even 5 or 10 years, then during that time the life situation may change many times over. For this reason, it is great that you can repay the loan in full if you can afford it.
Premature repayment of the loan using a consolidation loan
Premature repayment of loans is also possible by the borrower applying for a so-called consolidation loan, which is used to repay several smaller loan amounts prematurely, for example. After that, only one single loan is repaid.
Loan aggregation has become really popular these days, as it has also been found to make the life of the borrower easier, but it also saves money.
Contact your lender’s customer support
However, we recommend that at the point where you want to repay the loan prematurely or pay monthly installments in excess of what the original loan agreement states, you should first contact the lender. For example, you can contact customer support and discuss and agree on new loan payment arrangements there.
Although the debtor has a statutory right to repay the loan prematurely or to repay amounts in excess of the loan repayments specified in the credit agreement, contact is always recommended. Namely, it is paramount that the lender as well as the lender are both on the map of where to go and what is in the plans. However, borrowing money is always the so-called. A two-store where it’s good to make sure things are thought the same way.
Early loan repayment – what compensation can be involved?
However, banks and various credit companies have the right to demand compensation for the early repayment of a loan in the event that the loan is repaid prematurely during the fixed-rate loan period. However, this compensation is subject to statutory limits, i.e. the compensation may not exceed 1% of the amount of the loan repaid prematurely if there is more than one year remaining on the loan.
If, on the other hand, there is less than a year to terminate the loan agreement, then in that case the compensation can only be 0.5% of the amount of the early payment. However, the lender may, at its discretion, charge a maximum amount of interest between the early repayment of the loan and the date of termination of the loan agreement.
The lender may not recover compensation in a situation where the loan has been repaid prematurely during the calendar year with a minimum of $ 10,000. Nor can compensation be claimed in a situation where the early payment of a loan is based on loan security insurance or a credit agreement linked to a current account.