A loan repayment is the option to terminate an existing loan in its current form. The aim of such a loan repayment is the use of a cheaper interest rate for the loan financing.
What are the reasons for a loan repayment?
The reasons why you take out a loan early are very different and also depending on the individual case. However, there are three different influencing factors that can influence such a decision. The influencing factors are the concrete conditions of the loan, above all the interest agreement, the current development of the interest rate level and the economic freedom of movement of the respective borrower.
One reason why you can prematurely trigger a loan is that you want to take advantage of low interest rates. The interest rates on the free capital market are always subject to temporal fluctuations. Thus, the interest rate development is not predictable for the future. This makes it possible for a loan to have a fixed lending rate for the entire term, which is decoupled from the current lending rate. Thus, in a low-interest phase, the borrower can not benefit from the low interest rates and can lose valuable money.
Because of this, the borrower is at such a time interested in getting rid of these unfavorable credit conditions. He can do this either by rescheduling the credit agreement or by terminating the contract.
What advantages are there?
A loan repayment is also advantageous for a borrower who has multiple loan agreements. Because for such borrowers there is the option to bundle all current loans in a single. As a result, the borrower has more transparency over his loan agreements and he can also save cash, as he has a significant savings on a moderate agreement with the bank.
To repay multiple loans, the borrower simply has to borrow a new loan from a bank, which will then contain all the existing loan. He may also instruct the bank to redeem the borrowings from other banks.
How to proceed
The borrowers have different options on how to get rid of a loan again. One option is to terminate the existing loan agreement. In addition, an existing loan without termination effect can be rescheduled or the declaration on the conclusion of the credit agreement is revoked.
The choice of option is selected by the economic objective that the borrower specifically tracks. If, for example, a borrower turns to another loan agreement soon after entering into a loan agreement, the respective borrower can revoke his declaration of intention within the agreed period. As a result, the loan agreement would not even come about.
If, however, the contract has already been legally concluded, a premature termination of the loan agreement can take place within the statutory periods. As a result, the borrower would finally renounce the contract.
A rescheduling of the credit agreement does not require a formal notice of termination at the bank. Under the rescheduling agreement, the existing loan is simply converted into a new loan.
What role does prepayment penalty play?
In many loan agreements of banks one finds very often clauses, which provides for a premature repayment of the credit an early repayment penalty. Due to the principle of freedom of contract, such a clause is not unlawful. However, the question of maturity from bank to bank is answered differently in case of early loan repayment.
However, a prepayment penalty can not be demanded if the borrower complies with the legal protection against dismissal.
Thus, such compensation is only considered if the borrower terminates without observing the statutory notice period of three months. In addition, there are also banks, which refrain from the early repayment penalty, even if the period of notice was not respected. However, the borrower may expect to incur additional costs in the event of a premature loan repayment. These banks then charge a corresponding processing fee.
5 tips on credit removal
1. Note deadlines
For many loans, it is important to know the time limits for replacement. The longer the deadlines, the more expensive the loans, even though the contract has already been terminated. If the notice period for a real estate loan is, for example, 3 months, the full interest rate will be charged for this period.
As a result, the premature replacement can be a lot more expensive than calculated at the beginning. This may result in your own funds being insufficient to settle all costs at the due date. Therefore, the contract should be read carefully again before the final replacement to eliminate any ambiguity.
A probate way to replace a loan is debt restructuring on a cheaper offer. For this purpose, all offers should be compared exactly, because the devil is often hidden in detail. It is important that the rates in the new contract can be designed flexibly and that there are opportunities to adjust them in the long term.
In addition, the new loan should also cover a possible prepayment penalty of the old contract with, otherwise it must be paid out of his own pocket. In the overall terms of the new contract should be significantly cheaper than the old, so that such a plan of credit actually worthwhile.
3. Save money
An easy way to replace a loan is to pay it in cash completely. For this purpose, money can be saved over a long time, and then at a certain time to settle the balance immediately. However, here too, some calculations must be included in the calculation. Thus, a possible prepayment penalty must be considered and also the notice period can again cause new costs. This means that more must always be saved than the actually still open loan amount.
In addition, the money should be designed so that it can not be used for other things. A savings account with a certain commitment period can therefore be quite useful for this purpose.
4. Discuss the eradication with the lender
A replacement of the loan amount must be discussed with the lender in any case. Not only that this higher costs can be avoided, even at the replacement cost can still be saved if you enter directly into negotiations. For example, shorter deadlines can be agreed for the end of the contract, and any prepayment penalties can be renegotiated.
Important here is that the call is not on the phone, but at an appointment in the bank. As a result, the responsible parties can also be provided with corresponding documents that prove that the loan amount can be repaid immediately. Under the proof of the money, many banks are accommodating and often give proper discounts.
5. Avoid prepayment penalty
Avoiding the early repayment penalty is not always possible, but it can sometimes lead to success. So here first the right of withdrawal should be subjected to a detailed analysis. If they show up in this mistake, the contract can be contradicted even after years and new conditions can be negotiated.
Another way is to always behave correctly and to hope for the goodwill of the bank when ultimately the repayment of the loan amount is in the room. In the case of contracts that contain a final maturity, it is possible to proceed in such a way that the interest is always paid punctually. So it is easier in the end to negotiate compensation for the early repayment if the sum is repaid.