How does the early repayment of the loan work?
How does the early repayment of the loan work? More and more often we find ourselves resorting to the request for a loan to buy an asset or to make a dream come true. To fulfill the obligation assumed, it is necessary to pay the monthly installments of the loan, which are directly debited to a bank or postal account, but also through pre-filled bulletins provided by the financial institution that provides the loan. What if you want to pay off the loan early? Here’s how to do it.
What does it mean to pay off a loan early?
Early repayment of the loan entails a partial or total repayment of the amount lent to the lender by the contractor before the expiry date of the loan provided for in the original signature of the contract.
What are the costs of early repayment of the loan?
With the consumer credit reform of 1 June 2013, new rules were prepared regarding the compensation that the contractor owes to the lender and can be briefly summarized as follows:
- if the residual life of the contract exceeds one year, the compensation will correspond to 1% of the amount repaid in advance;
- if the residual life of the contract is equal to or less than one year, the compensation will be reduced to 0.5% of the amount repaid in advance.
Is compensation always due?
No, compensation is not due in some specific cases, namely:
- if the amount repaid in advance corresponds to the entire outstanding debt amount;
- if the amount repaid early is equal to or less than 10,000 dollars;
- if the extinction was made in execution of a credit guarantee insurance contract;
- if the early repayment takes place in a period of time in which an interest rate expressed by a specific fixed percentage predetermined in the stipulation contract is not applied.
Early loan repayment: convenient?
Early repayment is worthwhile if the loan was recently entered into, when the installments and the portion of the interest to be paid is very expensive. If, on the other hand, few installments are missing at the expiry of the loan, the amount of the penalty could exceed that of the charges still to be paid. For this, it is always good to make a preliminary calculation before proceeding with the early repayment of the loan.
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