The recommendation of financial experts is basically: “Pay back a loan as soon as possible!”: If you pay off your loan quickly, you often save money and increase your financial flexibility faster. Especially when the salary situation improves or through inheritances or other circumstances more money is available than planned, it is worthwhile to check the repayment terms of a contract. A so-called special repayment and their conditions are recorded there.
Repay installment loan early
Especially installment loans are ideal for making special repayments. In this way, long-term burdens can be severely limited in time.
Credit institutions, however, see the early repayment with mixed feelings. On the one hand, it reduces the risk of a default on the part of the bank, on the other hand, the bank escapes interest payments through early redemption and the maximum profit is reduced. Therefore, a call with the lender is normally essential to actually repay the loan early.
As a rule, the missing interest income is partially offset by discounts. The discounts usually consist of a small percentage of the remaining debt and a processing fee. Especially with smaller loan amounts or a short remaining time, therefore, a premature repayment is not always worthwhile. Borrowers should therefore calculate the remaining borrowing costs and compare the payments on account before actually opting for early repayment of the loan.
Special repayment on mortgage lending
The mortgage lending assumes a special status. Due to their long contract terms, the conditions for the term often differ. For example, it is customary for the annual special payment to be between five and ten percent of the loan amount. While fixed interest rates are clear, the sum of special payments must not exceed 25 percent of the loan amount. This looks different after expiry of the fixed interest rate. At this point in time, the borrower often receives a favorable opportunity to pay off his loan early.
Whether a special repayment is worth, is mainly from interest premium. In some cases, this is so high that it would make more sense to invest the excess money and profit from the interest through the investment. That’s why consumers should put special value on the repayment terms already at the conclusion of the loan. However, a flexible loan is often associated with more costs. Many banks increase interest rates with flexible repayment modalities. Financing without the right to special payments is therefore often the better choice. If more money is then available than originally planned, a sensible investment with good interest rates can lead to the borrower saving a lot of money.
A special option for repayment is offered to all borrowers who have not been properly informed by their adviser. If the revocation instruction is faulty or has not been received, the customer has a special right of termination, in which no prepayment penalty is due. This is because the beginning of the withdrawal period has never been triggered. The customer can then freely choose his new loan and, of course, only has to accept it for the amount he actually needs. Without litigation, however, very few banks will give in on this matter.