Is it really possible to pay off a loan in advance before it reaches its natural contractual expiration? How does it work? How much does it cost? Let’s find out all the details in this dedicated guide.
Personal loan: can it be paid off early?
Once the loan is turned on, it happens that the subscriber wants to proceed with the early repayment of the quantum debeatur . Thanks to this possibility, anyone with an ongoing loan agreement can return the sum due in advance to the funding institution.
Specifically, the debtor must return to the creditor the residual principal and the interest accrued up to that moment.
However, before proceeding with the early termination of the loan agreement, it is good advice to do two accounts in your pocket to understand whether, indeed, it is worthwhile or not. It is necessary to check the statement of the financing situation which is sent to the home of the borrower.
Thanks to this prospectus, updated at the end of each installment, each debtor can have as complete a picture as possible to understand the amount of the residual principal and interest that still have to be paid to the creditor.
Early repayment of the loan: when is it convenient?
And then, once you have carefully viewed the updated prospectus relating to the amount of principal and interest that still needs to be paid to the credit institution, when is it really worthwhile to pay off the loan early? Generally speaking, this solution is convenient if you are at the beginning of the loan amortization plan and you still have a lot of interest to pay, otherwise if you are at more than half of the loan repayment plan, it is not convenient at all.
In this second case, it is better to leave alone and continue to repay the loan installments according to the expiry nature of the loan agreement.
Early repayment of the loan: how much does it cost?
You have convinced yourself that you want to pay off the loan early, but how much does it cost you? In addition to the residual capital and accrued interest, you could take on the repayment of the interest losses on the installments by applying a late payment for the fact that you pay off the loan in advance.
The compensation corresponds to:
- 0.5% of the amount repaid in advance if the residual life of the loan is 12 months or less,
- to 1% of the amount repaid in advance if the residual life of the loan is greater than 12 months.