The consumer credit law guarantees the possibility of early repayment of the loan in cash. By repaying the liabilities earlier than expected, you can not only get rid of the debt incurred, but also recover some of the costs incurred. So, let’s see what prepayment of consumer credit looks like, what to pay attention to and whether it is profitable to take such a step.
The subscription of a consumer loan, as well as any other financial obligation, is inextricably linked to the need to sign a contract with a bank. This contract includes, among other things, data identifying the borrower, information on the costs of the loan, the rules for changing interest rates and the method of calculating interest. One of its key elements is the schedule, which specifies the exact dates for repayment of the debt with interest and other costs resulting from the contract.
The cash loan is repaid in principal and interest. These are most often equal payments. The mere fact that a precise schedule was established when the contract was signed does not mean that the borrower cannot prepay the loan, both partially and in full. Before making a decision, and preferably before signing the contract, it should be checked whether the bank will charge an additional commission for early repayment of the cash loan.
To better illustrate the impact of early repayment of a consumer loan, let’s take an example. We incur a liability of €2500 for a period of 12 months. The loan interest rate is 7.20%. The commission for the granting of financing is invoiced separately (it is not added to the capital) and amounts to 125 €. The consumer credit is repaid in equal installments.
In this variant, the sum of interest over the entire financing period is €98.57. We assume that the cash loan is fully repaid after 6 months. Interest accrued for six months is €71.71. A prepayment means €26.85 in savings due to uncharged interest, as well as a return of €62.5 in commission, which results from paying off the loan in full in the middle of the financing period. In the end, the whole operation represents a saving of €89.35.
The larger the loan amount, the greater the benefits of early settlement. Early repayment of the cash loan should be preceded by appropriate calculations, which will allow you to estimate the profitability of the entire project. For this purpose, you can use a cash loan installment calculator and check the potential costs of the variants adopted.
The full repayment of a cash loan is a comfort that few people can afford. This activity is usually accompanied by an unexpected injection of cash, which can be spent to get rid of an unwanted liability. However, it should be remembered that a cash loan can also be partially repaid with smaller amounts.