•   Wednesday, July 6, 2022

Early repayment of a loan - when can I do it?

When taking out a loan or credit, we usually plan to repay the amount of the obligation as early as possible, even before the agreed date. However, it does not necessarily have to pay off for us. Everything depends on the type of credit agreement and the content of the agreement.

Relevance of the repayment date of the loan

Mortgage loans, loans for construction or purchase of a house are usually for large amounts and for a very long time - even 50 years. At the other end of the spectrum there are online loans, which we often take for a month or two. Depending on the maturity of the loan, the bank or borrowing institution determines in which instalments we will repay the loan and what the interest rate and global charges will be. It often determines how much money we really have to give back to the bank - the longer the repayment term, the better the bank will earn on us. The lender does not care, therefore, that this obligation should be repaid more quickly, if it would result in a lower income for him.

Provisions of the Consumer Credit Act

Since 18 December 2011, a provision of the Consumer Credit Act has been in force, pursuant to which the customer has the right to repay all or part of the credit before the date specified in the agreement. This provision applies to consumer credit, i.e. credit granted to individuals for private, non-business purposes. Those provisions provide that a creditor may not make the possibility of early repayment subject to prior notification of the fact by the borrower. The financial institution may, however, charge the customer compensation of up to 1% of the value of the loan repaid (0.5% if there is less than 12 months between the early repayment and the contractual deadline).

However, this regulation does not apply to all loans. It applies only to fixed-rate loans and only if the amount repaid over a period of 12 months exceeds a certain value - currently three times the average remuneration in the corporate sector.

It's all about the deal

We do not necessarily have to use this provision - it is sufficient that the loan agreement stipulates that it is possible to repay the debt in advance. Therefore, it is always worth reading the agreement carefully, also in this respect. Early repayment of a loan can reduce global costs by reducing the costs for the remaining duration of the contract, even if the consumer had repaid it before the repayment date. However, if the interest rate on the loan is low, it is worthwhile to think whether it is better to repay the loan on the dates specified in the agreement and invest the financial surplus in a well-interested deposit or in a promising business. Then the lack of early repayment will pay off anyway.

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