You want to repay a loan before the term expires to save costs. There is no general answer to whether you can pay off your loan earlier than contractually agreed. Whether you can repay the remaining amount early depends on the individual conditions of the bank or savings bank.
If free repayments have been agreed in writing between you and the bank when the loan agreement was concluded, you may also repay your loan before the end of the term. However, it must be mentioned at this point that not all banks offer you the option of a special repayment for all types of credit.
Early loan repayment can be expensive
In the event of early repayment, the bank loses interest. The bank will bill you for these losses. This process is called prepayment penalty. The reason for the payment by banks is that the interest income from the bank has been planned for the entire term of the contract. However, if you repay your loan early, your bank will lose interest income. Your bank can have you replace these losses. How high the prepayment penalty is determined by the contract term.
In the case of loan income with a remaining term of more than 12 months, the prepayment penalty must not exceed 1 percent of the remaining loan amount. With a remaining term of less than one year, your financial institution may not charge you more than 0.5 of the loan amount.
Despite prepayment penalty, you can benefit from early repayment
Even if you have to pay compensation to the bank, early repayment of the loan can be financially worthwhile for you. Whether you benefit more if you repay the entire remaining amount in one go before the end of the term or whether special repayments are more advantageous for you cannot be said in general. You have to calculate it yourself or have it calculated by an expert.
Debt restructuring is usually beneficial
Debting a loan with a lower-interest loan is in most cases financially worthwhile for you. To reschedule, cancel your existing loan agreement and sign a loan agreement with another bank.
If the interest level is lower when the new loan agreement is concluded than when the loan to be rescheduled is concluded, you will reduce the loan costs despite paying a prepayment penalty. Debt rescheduling makes sense if your prepayment penalty is amortized by lower interest rates.
Low interest rates motivate debt restructuring
Why are interest rates so low at the current time? The era of low interest rates began with the financial crisis in 2010. In order to stimulate economic growth, the Central Bank cut the key interest rate. The aim of the interest rate cut was to ensure that indebted countries reduce the financial burden of interest.
Low interest rates should also encourage companies and individuals to take out loans and make attractive investments, for example in the construction of new production facilities. Mini-interest on savings should continue to bring more money into circulation.
Find low-interest loans for debt restructuring
Low-interest loans are offered to you on the Internet. In order for you to benefit from the best offer, you should carry out a loan comparison. This only takes a few minutes and is of course free of charge and non-binding for you. After you have found the offer with the most favorable terms, you can conveniently apply for the loan online from most providers.