Installment loan repayment: early repayment and immediate repayment
Installment loan repayment is made in monthly installments during the agreed term of the loan. An installment is composed of the repayment amount and the interest portion. With most installment loans, the installment to be paid remains constant over the entire term of the loan. At the end of the term, both the loan and the interest are paid off.
When is it worthwhile to repay an installment loan early??
When taking out a loan, you have intensively considered the term of the interest and the rates. But now you have come into money unexpectedly before the end of the loan term – whether through a windfall, an inheritance or a pay rise. If you now repay the installment loan directly, you can thereby reduce the interest significantly.
Even if you want to reschedule your installment loan, it makes sense to repay it early. By taking out another loan with better conditions, you save money. If the interest savings exceed the cost of debt restructuring, you should definitely consider an installment loan repayment.
By the way: Information on current and already repaid loans are stored by Schufa and can have a positive effect on your creditworthiness. If, on the other hand, the installment loan repayment is delayed, you will receive a bad Schufa score. However, you can also obtain an installment loan despite Schufa entry.
Compensation for early redemption
You can also repay the loan amount in full before the end of the term. However, there are some points to consider when paying off the loan early. For example, a so-called early repayment penalty may be incurred if you make the installment loan repayment early. The amount of compensation is specified in the law. If the remaining term is more than one year, the compensation is max. 1% of the remaining debt. And if the remaining term is less than one year, the compensation may even be a maximum of 0.5% of the remaining loan amount.
Old contracts that were concluded before 11. Loans concluded by June 2010 are exempt from the legal regulation on early repayment compensation. Here it is necessary to read the contract carefully. Although there is usually no compensation for early redemption, a notice period must be observed instead.
What you should consider when making unscheduled repayments
A special repayment is a partial repayment outside the contractually agreed monthly installments. This can be z.B. Occur when you receive an unscheduled payment, such as a refund from the local utility company or a one-time bonus at work.
A special repayment has the consequence that either the credit term is shortened, or the amount of the monthly rates sinks. Therefore, the following applies in principle: If the opportunity arises to make an unscheduled repayment, you should also use it. Before doing so, however, you should take a close look at your contract documents. Some credit institutions charge a fee for unscheduled repayments. When you take out a loan, you should therefore make sure that free unscheduled repayments are included in the contract.