In Germany, very many people currently have an installment loan running and countless more are added every day. Many borrowers are less concerned about a special repayment when taking out their loans, but attach great importance to the speed of the disbursement. You can save a lot of money with a special repayment if the worst comes to the worst. If you also currently have an installment loan or are planning to take out one, then you should definitely not ignore a special repayment. Why is explained below.
Special repayment equal cash
If an installment loan is taken out, it is usually repaid monthly by the borrower to the lender in always constant repayment installments. What many borrowers do not know, however, is the fact that there is a right to special loan repayment . This not only allows you to repay the loan faster, but also saves you money. If you currently have the money left over, the consideration of a special repayment can prove to be definitely worthwhile for you.
Your credit, your money, your rights
If you already have a loan in progress, you know that you will usually have to repay the bank a constant monthly installment over the entire term of the installment loan. Especially in the early stages of the loan, you mostly only pay the interest on the loan. Only secondarily does the monthly installment also have the purpose of deducting the loan amount actually taken out. However, the longer the loan term, the closer you get to this actual repayment. You then deduct more of the loan amount and bear less of the interest component. The reason for this is quite simply the so-called residual debt. You only pay the accruing interest on the current remaining debt and this decreases with each monthly installment.
If you make a special repayment now, this remaining debt will be even smaller in one fell swoop and you will therefore pay even less interest. Conversely, this means that you can save a lot of money .
You should pay attention to this with a special repayment
- You have a right to a special repayment
As a borrower, you not only have obligations but also rights. One of the rights you have is the subject of “special repayment”. You can repay part or all of your installment loan at any time. This fact applies to all loans taken out after June 11, 2010.
- The early repayment penalty
If you repay your loan in whole or in part before the actual loan term expires, your lender will suffer a so-called interest loss. Of course, the bank would like to compensate for this and therefore has the right to pay an early repayment penalty. How high this compensation is always depends on the remaining term of the loan. If the remaining term of your loan is more than a year, then the lender may charge one percent of the remaining amount for early repayment penalties. If you are less than a year, then it can be a maximum of 0.5 percent.
Does the bank require a prepayment penalty on your loan?
Before you sign the loan agreement, you can find out whether your lender will require such compensation if the worst comes to the worst. Your credit file must be accompanied by a document called “ European Standard Consumer Credit Information ”. This is also where the regulation is set out to what extent you are allowed to make a free special repayment each year. If your lender does not require you to pay a prepayment penalty, then a special repayment will always prove to be worthwhile for you. However, if the bank plans to make such a payment, you must first make a few calculations in order to determine whether a special repayment is worthwhile for you.
Please note that as long as the amount of this compensation is lower than it is the case for the accrued interest over the entire remaining term, a special repayment is profitable. You also have the option of using such special repayments to convert a current loan into a new loan . Here you completely replace the old loan by taking out a new loan.
When is it worth rescheduling?
A rescheduling of an existing loan can prove to be worthwhile if, for example, the new loan has a significantly lower effective annual interest rate than is the case with your current loan. If the prepayment penalty is less than the interest expense incurred for the new loan, rescheduling is also lucrative.
How you can make a special repayment
- Step: Prepare the budget
The first step is to take a close look at your finances. Prepare a household invoice on an absolutely realistic basis. Enter your regular income and expenses there.
- Step: Set the repayment installment
Using the household bill, you can then determine how high the monthly repayment installment for the loan can be. Of course, you do not have to, and above all should not, use all of the other money in the month for the loan installment. You decide for yourself how much of the remaining monthly budget you want to use for a loan installment. About 20 percent is a good value for the basis of a repayment installment.
- The special repayment and its amount
If you have carried out the corresponding invoices in full, you can use this calculation to determine how much you could raise annually as a special repayment. But here, too, you should not use the entire amount again for this purpose. Always leave yourself a buffer for unpredictable events.
My name is Martina Lange and I prefer to write journalistic texts on the topics of finance and medicine. I also love to write professional articles of all kinds. I can find my way into almost any topic and am always happy when I have even more knowledge after finishing a text. As a freelance writer, I am passionate about writing for creditSUN.