A special repayment is the unscheduled payment of a sum that is in any case higher than the agreed loan installment to be repaid. Early repayment is not time-dependent and can be done at any time during the loan period. Such repayment also makes sense if, for example, a larger tax refund or even an inheritance is in the pipeline, unless the funds are needed for other expenses or investments. If such an opportunity presents itself, the customer should speak to his bank about special repayment terms.
How does a special repayment work?
There are two types: payment of a higher amount or payment of the full remaining amount (transfer fee).
When a loan agreement is concluded, the maximum amount and frequency of the special repayment without prepayment penalty is agreed with the bank.
Such a later agreement is only possible with the approval of the bank. If it is approved, a prepayment penalty is due here in any case.
Building societies are very variable here and allow any amount to be repaid early without prepayment penalty.
Other credit institutions and banks usually make special repayments of between three and ten percent of the loan amount per year. However, a maximum of 30 or 50 percent of the loan during the fixed interest period.
Does early repayment make sense for a loan?
If the installments are paid on a regular basis, the borrower will at least know when he is finished with the loan. However, there is also an age-specific difference between whether you still have five years to go before the loan is paid. If there is a possibility of early repayment because it is better to repay the loan early instead of a new car, the special repayment was not only used well.
This means that you are debt-free faster and you don’t know beforehand what that can be good for. It is important that you can negotiate a loan with a special repayment on customer-friendly terms.
Can the loan be paid off faster?
The solution is almost tailor-made. In addition to the monthly constant payments, further and possibly larger amounts can be paid in at once. This payment option automatically reduces the total amount of the loan. Hence the interest to be paid and the loan term.
What about granting such loans?
Even if the lending was processed satisfactorily for the customer, the requirements of the banks and credit institutions take some getting used to.
As a rule, there are strict requirements for the actual special repayment. In order to keep the administrative burden for the bank as low as possible, it often works with quite high minimum sums. But there are many banks in this area that also set a maximum amount of between four and five percent of the loan amount. That has to do with the interest. If the bank grants a loan with a special repayment, it does not want to waive too much interest if possible.
Flexible repayment can also mean a higher quality of life!
If it is not a fixed but performance-related income with bonuses or profit distribution, there is very often the possibility of a special loan payment.
The advantages of such income relationships are not only financial, they also mean a lower interest burden including flexible credit use. In any case, this is a plus point for every borrower.
Are there differences between the credit institutions?
With direct banks, it is in principle easier to obtain such a loan with a special repayment option, since they are structured much leaner than the classic branch banks.
Experience shows that the branch banks work much more cumbersome in this sector. Sometimes a little customer pressure helps with the reference to the conditions of the direct banks.
Where do loans with a special repayment option often apply?
For example, with a building loan. Buying a home is often associated with high costs over a long period of time. It is all too understandable that many borrowers want to be released from their debts as quickly as possible. In so far, the appropriate repayment strategy also speeds up debt relief.
What should you look for in the case of special repayment?
In addition to the interest rate differential, many property owners often overlook the advantages of their special payment right. Even with a one-off payment it is worth it.
A loan of USD 200,000 with a fixed interest rate of 10 years at five percent results in a reduction in the compound interest effect of around USD 2,800 after five years with a payment of USD 10,000. In the same period, the total loan term is reduced by a full 3.5 years. The exercise time is very important here. If, in this case, the special repayment rate already occurs after two years, the interest payment is reduced by a whopping 4,800 USD and the borrower is released from the debt 4 years earlier.