In Germany, many people currently have an installment loan and countless more are added every day. Many borrowers are less concerned about special repayments when taking out their loans, but rather attach great importance to the speed of payment. A special repayment can save a lot of money if the worst comes to the worst. If you currently have an installment loan or are planning to take one out, then you should definitely not neglect special repayment. Why is explained below.
If an installment loan is taken out, this is usually repaid monthly to the lender in constant repayment installments. However, what many borrowers do not know is the fact that there is a right to a special loan repayment . So you can not only repay the loan faster, but also save money. If you currently have the money left over, the consideration of a special repayment can prove to be quite worthwhile for you.
Your credit, your money, your right
If you already have a loan in progress, then you know that you usually have to repay a constant monthly installment to the bank over the entire term of the installment loan. Especially in the beginning of the loan, you mainly only pay the interest on the loan. Secondly, the monthly installment also serves the purpose of paying off the loan amount actually taken out. However, the longer the loan term passes, the closer you get to this actual repayment. You then deduct more of the loan amount and less of the interest portion. The reason for this is very simply the so-called residual debt. You only pay the accrued interest on the current residual debt amount and this continues to decrease with every monthly installment.
If you make a special repayment now, then this remaining debt will be even smaller in one fell swoop and you will pay even less interest. Conversely, this means that you can save a lot of money.
You should pay attention to this in the event of a special repayment
You have the right to a special repayment
As a borrower, you have not only obligations but also rights. One of the rights that you have concerns yourself with 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 prepayment penalty
If you repay all or part of your loan before the actual loan term expires, your lender will experience a so-called loss of interest. Of course, the bank would like to compensate for this and therefore has the right to pay a prepayment penalty. The amount of this compensation always depends on the remaining term of the loan. If the remaining term of your loan is more than one year, the lender may charge one percent of the prepayment penalty on the remaining debt. If you are under one year, then it may be a maximum of 0.5 percent.
Does the bank ask for prepayment penalty on your loan?
Before signing the loan agreement, you can find out whether your lender is required to receive such compensation in the event of an emergency. Your loan documents must be accompanied by a document called “European Standard Information for Consumer Loans”. This also sets out the extent to which you are permitted to make a special repayment free of charge each year. If your lender does not demand prepayment penalty from you, then a special repayment will always prove to be worthwhile for you. However, if the bank intends to make such a payment, you must first carry out a few calculations in order to be able 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 for the interest on the entire remaining term, a special repayment is profitable. You can also use such special repayments to convert a current loan into a new loan. Here you replace the old loan entirely by taking out a new loan.
When is debt restructuring worthwhile?
A debt rescheduling from an existing loan can turn out 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 on the new loan, rescheduling is also lucrative.
How you can make a special repayment
Step: create a household bill
The first step is to take a close look at your finances. Create a budget bill on an absolutely realistic basis. Enter your regular income and expenses there.
Step: Set the repayment rate
You can then use the household bill to determine how high the monthly repayment rate for the loan can be. Of course, you should and above all you should not use all the remaining money per month for the loan installment. You decide how much of the remaining monthly budget you want to spend on a loan installment. About 20 percent is a good value for the basis of a repayment rate.
The special repayment and its amount
If you have carried out the relevant calculations in full, you can use this calculation to determine how much you could raise annually as a special repayment. But again, you should not use the entire amount for this purpose. Always leave yourself a buffer for unpredictable events.