The majority of German citizens are happy every year when the decision to tax return the previous year in the house. Because connected with the receipt, the notification is that a corresponding tax credit is available for payment. The joy is great and at once the question arises: what to do with the extra money? A question that is easy to answer for citizens with current loans : special repayment. And the willingness to make special repayments is not uncommon.
According to a survey of an online tax return provider, well over one in ten wants to use their tax refund for a special repayment. But what are special repayments and what should borrowers pay attention to when using the offer “special repayment”? Let’s take a closer look at individual aspects.
What is a special repayment and what does it bring to borrowers?
As already mentioned, loans are repaid by monthly installments, the amount of which is defined in relation to the loan amount, interest rate and term. However, agreements can be made with banks to prematurely repay the loan itself through appropriate special repayments, reduce the installment size and / or significantly reduce the term. If such an agreement for the performance of special repayments results in significant benefits for the borrower >>
• The goal of debt freedom is achieved much faster
• The monthly burden can be reduced by reducing the rate
• The term of the loan is shortened
• The amount of the interest charge is lower
It should be noted that the above points can not be achieved in total. With the performance of special repayments, it is therefore always necessary to clarify with the lending bank which of the aforementioned goals should actually be achieved.
Are special repayments always possible with current loans?
Irrespective of which goals are to be achieved when repaying a loan by means of a special payment, it is not unusual for borrowers to ask whether this is even possible. The answer to such a question is a clear “yes”. For classic installment loans, unscheduled repayments during repayment are possible at any time and without restrictions. The legislature has taken care of that. For example, the Bürgerliches Gesetzbuch (BGB) stipulates that borrowers can meet all or part of their liabilities under a consumer loan agreement at any time.
Special repayment on credit – the right time
In order to get the best possible benefit from the possibility of special repayment, the time of the special payment is a criterion which should by no means be neglected. It is true that the later one or more special payments are made during the repayment term, the lower the potential savings in the interest payable. Because once paid interest within a loan can not be saved. In this respect, the rule of thumb here is that the sooner you, as a borrower, can make a special repayment within the loan, the harder it will be at the original borrowing costs. In plain language, the earlier you can make special payments, the greater the savings in interest rates.
Stumbling block on special repayments – the prepayment penalty
But care: The possibility of special repayments on loans can also be a financial pitfall. In particular, if the Bank allows for special payments but has a premature termination of the loan by means of one or more such payments, it would have to complain about financial losses (interest losses). A loss, because many banks try to avoid by a clause in the loan agreements by a so-called clause on prepayment decision is incorporated.
However, here too, the existence of such a clause should be kept calm: In the case of consumer credit and / or installment loans, the maximum cost of such compensation is quite manageable. The reason for this is a statutory provision from 2010. From this point on, the legislator has introduced a cap that states that banks may claim a maximum of 0.5 percent of the amount repaid early as a fee. That, on the premise that only twelve or less installments would have to be paid. If the residual maturity is more than one year, the prepayment penalty is limited to one percent of the special repayment amount. In no case, however, may the bank demand more than it actually escapes interest.