Special repayments on installment credit – what opportunities borrowers have
As a rule, an installment loan is designed for the medium or long term. The amount and duration of the installments are already set at the beginning. The bank normally offers a special repayment right for the customer only for loans where there is a fixed interest rate .
On the other hand, if it is a loan where the interest rate is variable , banks tend to be a bit more relaxed – and this is where the relevant credit institution is concerned. In this way, the bank can better plan and calculate the income from interest.
However, if a loan is to be redeemed in part or in full before the end of the regular term, the calculation of the bank is more or less obsolete . It receives fewer payments than expected – this result is also called margin loss.
As a rule, a bank receives profit through a lower return on deposits than is the case with a loan. This difference is called the margin.
Consequences of early loan repayment
Depending on how long the term of the loan is, the higher the interest that accrues and hence the profit the bank makes. This in turn means that the sooner a borrower repays his borrowed loan, the less profit the bank makes. It is not without reason that the so-called prepayment penalty , which many banks demand from their customers, helps to alleviate the financial loss incurred.
The costs of the early repayment penalty can be found in the general terms and conditions of the corresponding bank or in the loan agreement .
A good tip:
Even when applying for a loan, customers should inform themselves about any possibilities of special repayment. Often, banks even offer special unscheduled repayments – so be sure to check out various banks and their offers before borrowing.
Free special repayments are possible at many banks
It is often possible for long-term loans to repay up to 10% of the total loan amount each year as a special repayment without the borrower having to pay extra for this.
Not unimportant in this context, however, is the so-called fixed interest period .
In the case of a real estate loan, most banks agree on follow-up financing with their customers after the end of their term in order to pay off additional costs in installments. The alternative would be to fully repay the outstanding loan installments. If the interest rate period is set, a bank can limit special payments that are made unscheduled to a maximum limit.
How useful is a special repayment on a loan?
Nowadays, most loan contracts contain prepayment penalties which, in the event of a special repayment , must be paid by the borrower to the bank . For the customer, however, it is ultimately always advantageous if he can save money thanks to a special repayment.
It is therefore worthwhile to look for suitable loan offers at an early stage, where special repayments do not cost anything. The terms and conditions vary from bank to bank.
One should not underestimate how many costs can be saved by special repayments:
Particularly for loans with a very high loan amount – such as a home loan of more than € 500,000 – the borrower will incur many additional interest over the years. For a period of two decades, that’s several thousand euros and money that a bank can count on. However, if the outstanding amounts can already be settled free of charge through special repayments, this will provide the borrower with enormous financial savings.
In addition, home savings loans are particularly inexpensive: With these credit models, a special repayment is basically free of charge at any time and in any amount.
Conclusion: Ask your bank for the possibilities
Taking out a loan to fulfill wishes or purchase larger items is now commonplace . The loan offer of banks and credit institutions is correspondingly large. For the consumer it is very important to compare the individual offers exactly before deciding on a loan. It is important to pay attention not only to the effective interest rate, but also to whether there are opportunities for special repayment.
Anyone who already decides beforehand on a bank that offers free special repayments has a clear long-term advantage. So you have the opportunity to repay something more in case of unexpected financial surplus in order to reduce the credit rates.