What is a special repayment?
The simple repayment is simply an unscheduled installment repayment of a loan or other loan. Such repayment is useful in many cases, but in some cases it can also entail costs that can have a negative impact on you as a borrower. You should therefore check carefully in each individual case when a special repayment is worthwhile for you.
When is a special repayment possible?
A special repayment is possible in principle with newer loans. The cut-off date for this was June 11, 2010. Exactly how the modalities are designed depends on the bank and is stipulated in the contract. The earliest possible date for special repayments is after the first month. In addition, a special repayment is usually only possible once a year, whereby building societies make no restrictions. Here you have to keep in mind that a bank has the right to request a prepayment penalty. This compensates the lender for the lost profit through interest payments. The prepayment penalty can amount to up to 1% of the loan amount for a term of less than one year. In practice, however, most lenders waive this compensation, and building societies even fundamentally.
How much is a special repayment?
Another limitation concerns the amount of the special repayment. Most lenders limit the amount of the special repayment to a fixed percentage. This still depends on two different factors.
If you want to pay a particularly high special repayment, the usual percentage outside the fixed interest period is 30% or 50% of the original total loan amount. During the fixed interest period, annual payments of 3%, 5% or up to 10% of the initial loan amount are common. Here, too, building societies are an exception and allow any amount of special repayments to be made at any time.
Sense of special repayment
The purpose of special repayments is quite obvious. A sometimes unpredictable or planned increase in wealth changes your options for financing a loan. With an increase in assets, you have the option of investing the added assets elsewhere or reducing the remaining debt and the term of your loan. Which of the two options is more worthwhile depends on many factors that you have to calculate. As a result of the calculation, there should be an interest sum that is as advantageous as possible. This is calculated from the interest gain from an investment and the interest loss from the loan.
In most cases, especially if you deposit the money with the same credit institution that is also used as a credit institution, the special loan repayment is of great advantage. In this case it will be the case that the interest on the loan is significantly higher than the interest on an investment. It follows that a reduction in the term will reduce your obligations to the bank and that you will only make a profit after paying the remaining debt if you invest equity free of debt.
Disadvantage of a special repayment
Some banks let you have the contractually agreed right to repay you. In addition to a prepayment penalty, there may also be a special interest rate for the period of fixed interest, which must be included in the total payments and is due even if you do not make any special repayments.