With installment loans or special purpose loans such as real estate loans with a high total volume, it is common for special repayments to be offered free of charge during the term. These make it possible to pay off the loan faster or even to trigger it in one fell swoop. The borrower can usually find out exactly how this works and what the conditions must be in the fine print for the loan agreement.
However, some banks and savings banks do not offer the loan with special repayment entirely voluntarily. They see their earnings swing, which will decrease if the loan is triggered earlier. Because the interest on the loan is paid every month. If the loan is released early with a special repayment, interest income is lost. It is therefore very important that you, the borrower, make sure that a clause regarding free special repayments is included in the loan agreement. Otherwise, a special repayment can be very expensive.
Special repayment loans – why is it important?
An installment loan can be taken out to create sufficient financial scope for a wide variety of purchases. It doesn’t matter whether you want to buy a new kitchen, a car or just new clothes. With an installment loan, this and much more is possible.
As a rule, an installment loan is repaid to the bank or savings bank in small installments. Depending on the amount of the loan taken out, this can take several years. If the borrower’s income situation changes during the repayment of the loan for the positive, the borrower could pay off the loan more quickly in order to be free of debt again.
If it is a loan with a special repayment, this is not a problem. Because this can be triggered at any time with the help of special payments. However, to ensure that no problems really arise, there are a few things to consider with a loan with a special repayment.
The bank has to agree
As already mentioned, a special repayment must have been agreed in the loan agreement. Only then is this possible free of charge or under the conditions set out in the loan. On the other hand, if no special repayment was agreed in the loan agreement, the borrower has to expect that the bank will have these additional payments and the associated early triggering of the loan well paid. Because then discounts are due that have it all.
The discounts often amount to a processing fee of 40 to 100 USD plus 1 percent of the remaining debt. Especially with large loan amounts, a few hundred USD can quickly come together. Very annoying when you consider that you really wanted to save a lot of money with the special repayment and the associated early transfer.
On top of that, it is important that the bank or savings bank is informed of the special repayment. Even if this was agreed in the loan agreement. If the money is simply transferred in this way, the bank may not be able to allocate it and the money may be left unused. If, on the other hand, you inform the bank about the special repayment, it will process the process quickly, recalculate the loan and thus pave the way for new payments or the complete transfer.
By the way: a special repayment is not binding. Even if it is in the loan agreement. It is always just an option that can be used by the borrower but does not have to be used.
Why banks can charge extra repayment fees
Banks are happy about every borrower who wants to take out a loan with a large volume and a long term with a good credit rating. Because every month that has to be used for the repayment of the loan is subject to an interest, which is included in the monthly installment. The interest is the remuneration for the bank that it receives for providing the loan.
The longer a loan runs, the more interest accrues, since these are paid every month. This means that the bank makes more money every month. If a loan with a special repayment is now required, these monthly interest payments cease early. Because a special repayment does not mean that you can deposit more money in one fell swoop and suspend a few monthly installments. It means that additional money flows into the loan, which promotes its quick redemption.
If the interest payments cease due to the early payment, the bank makes less money with the loan. As compensation, she therefore demands a so-called prepayment penalty, which consists of a fee and about 1 percent of the remaining outstanding amount.
Tip: If you are looking for a new loan and absolutely want a loan with a special repayment, you have to make sure when selecting the loan that there is a corresponding agreement in the loan contract. In the best case, the bank is contacted directly to be sure that such an agreement is reached. Otherwise, especially with online loans, it can happen that the fine print is not read exactly and this important option is not given.