Premature Severance Costs – Repayment of Loans

Local bank is not one of the banks that leaves special repayments and early loan repayments free of charge in all cases. The installment loans may be repaid in whole or in part at any time without notice. On the one hand, with the Local bank “Personal Loan Direct”, you as a borrower benefit from top conditions on the Internet. The loan request from Local bank is completely free and without obligation. What if you want to repay all or part of your loan ahead of time (special repayment)?

Flexible repayment of loans

Flexible repayment of loans

If the financial possibilities permit, it makes sense to pay back a loan sooner. Whether special repayment or monthly installment increase – borrowers should be aware before concluding a contract how variable their repayments can be. Christmas bonus, tip, inheritance or – less frequently – the lottery prize: If, in addition to the regular salary, large sums of money flow into the gaming account, the borrowers can repay all or part of their credit.

Because if loans are repaid sooner than anticipated, there is no need for future interest. According to a study commissioned by Local bank from T-Systems, the flexible repayment options are the best decision-making argument for (potential) borrowers. At 56%, these are even more important in decision-making than the annual fee rate (50%).

Unless an agreement on extraordinary repayments has been made in the loan agreement, since July 11, 2010, the following statutory provisions apply to new contracts: Credit institutions may not exceed a percentage of the prematurely repaid amount, the so-called early repayment fee, and only 0.5 percentage points for a residual maturity of less than twelve months. “Before you make a loan, you should be aware of the flexibility of the repayment options.

Some credit institutions sometimes resort to the payment of unscheduled repayments, “explains Local bank’s credit expert, Dr. Ing. Stephan P. Meier. As an alternative to unscheduled repayments, borrowers can advance repayment by increasing the monthly installment. “This is particularly useful when the family’s income is constantly increasing, for example, by a wage increase or a return to work after parental leave,” says Dr. JagerMan.

If the loan agreement stipulates a correction of the repayment installment, the borrower informs his principal bank that he wishes to increase the monthly interest and the repayment amount and agrees.

Special repayments of installment loans: the banking comparison

Special repayments of installment loans: the banking comparison

The installment loan agreements between different banks differ only slightly from each other. This is due to a high degree of legal regulation and tough competition between credit institutions for bad debts. The latter ensures that hardly a house bank or savings bank can afford really anti-consumer credit conditions. This is the “early part or full repayment” of a loan.

We have compared the loan applications of some banks, which regulations for early or unscheduled repayment are presented to the client for subscription. To create a consistent and fair basis for comparison, we have creditend on the credit platform. submitted a request for a loan agreement of 10,000 USD with a duration of 4 years (48 months) with the details of a model person.

He then asks the affiliated credit institutions for an offer on the concretely entered boundary conditions regarding life situation, earnings etc. and lists the offers in tabular form. Subsequently, the individual, concrete application documents can be downloaded from all credit institutions – and we have done that and specifically dealt with the regulations for the repayment of installment loans.

If you want to repay your loan early or even earlier than the original fixed repayment plan, you are interested in two aspects: a) Can I repay the loan more quickly, repay it early? In both cases, the federal legislature has issued uniform regulations in the Civil Code, which the credit institutions have to comply with.

However, credit institutions are not allowed in the loan agreement to make any provision that puts the borrower in a worse position than the legislature dictates. If these terms are included in the Loan Agreement, these Terms (not the entire Loan Agreement) are void. In principle, the legislature has decided: Yes, consumers can pay their advance payment prematurely.

Partly or completely. This is stipulated in 500 civil laws, which state that: (1) The borrower may dissolve a general consumer credit agreement, without notice, in whole or in part, without notice. A “general consumer credit agreement” refers to a standard “installment loan” that every house bank provides for each purpose.

This wording is important because there are other types of loans and special forms for which there are understandably special rules, such as real estate. This is a contractual penalty that the principal bank charges the borrower if he can not repay the loan as intended, but repay it early.

Reason: If the bank customer has taken a loan for 7 years, the house bank expects a return for 7 years. The house bank is entitled to these proceeds. If you want to settle your claims earlier / faster, the bank accounts will lose. The resulting contractual “loss” should be at least partially compensated.

In the past, if the equalization charge was made by the credit institutions, then the amount of the charge is now regulated by law, namely 502 Civil Code: in the case of early repayment, the lender may claim a corresponding penalty for the damage directly incurred in the event of default, if the borrower has a fixed debit interest rate at the time of repayment.

For early redemption of 1 percentage point of the amount or, if the time frame between early and agreed repayment does not exceed one year, 0.5 percentage points of the prematurely redeemed amount, ie: The house bank can not repay a loan for at least 1% of the residual debt due to claim as remuneration. If the remaining term of the loan is less than one year, this early repayment penalty may only amount to 0.5%.

In no case may the remuneration exceed the amount of interest accrued on regular repayment until the end of the term of the loan. What are the current regulations of the banks? In our installment credit comparison with regard to special repayments / prepayment, it is noticeable that credit institutions do not always adopt the standard provisions of the federal legislature, but develop their own characteristics.

At Local bank, the legal provisions vary, eg. For example, in such a way that the borrower can repay once a year without the bank asking for the legally permissible penalty for the prepayment date. This means that the loan can not be fully repaid early and free of charge. Only a premature reduction of the total debt is possible. After all, this is better than the basic legislative decree, but other credit institutions in some cases make it even more consumer friendly.

The question always arises as to what extent consumer-friendly (and for the house bank more expensive) rules will be reflected in increased interest rates on loans from other banks. In addition, the private bank has submitted a installment loan offer of 10,000 USD for a period of 4 years.

Also, the loan conditions for the early repayment of the loan appear “exemplary” in good and bad sense. The legal provisions according to the Civil Code have been implemented simply, ie as a consumer you can prematurely pay off your personal PSD loan at least or faster than planned – according to the application documents available to us, however, is a compensation in the sense of prepayment of max. To pay 1% / 0.5% – at first we thought, because it is so small, but ….!

Although the statutory standard provision was left in the usual small print, they offer the free special repayment by “additional agreement” under the “other credit terms”. Of course, this is a good feeling, because the range of services provided by the private credit institution (at least with regard to the point of the early maturity test) is better than that of Local bank.

The conditions at the Danish National Bank are just as good. The personal loan of the Dundes bank can be repaid at any time wholly or in part free of charge. 

In this regard, the offered by us installment loan offer “Private Loan” our favorite in the current time comparison. This is mainly because the Dundes bank – in addition to Local bank and the Sparkasse – offered the best interest rate of 3.89% on the basis of our recorded values ​​on the basis of our credit comparison request via creditend.

But the comparison of SWD personal loans with Local bank personal loans has already shown that Local bank’s special repayment options are simply better than those of Local bank, even though Local bank is already granting consumer-friendly regulations that go beyond what is legally required.

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