When you take out a loan, you enter into a loan agreement that runs over a specified period of time. Usually you can pay off the loan ahead of time, but it does cost a little extra.
By taking out a loan, you enter into a loan agreement with a loan provider that you sign (typically via Easy ID). This Agreement is effective and binding. The agreement will specify whether you can repay the loan ahead of time and how to pay off.
Can I repay my loan ahead of time?
The vast majority of loans may be repaid ahead of time, but in the vast majority of cases it also costs little to do so. This is because the loan provider expects an income as compared to the loan agreement, and if you pay off the loan ahead of time, the loan provider will miss some of that income in the form of interest for the remaining term. Therefore, you typically pay a redemption fee to redeem the loan ahead of time as “a patch on the wound” to the loan provider.
- Pay attention to whether the loan can be repaid
- Pay attention to the cost of repaying the loan
- Pay attention to whether the loan can be paid off
Price on loan repayment
Just as the loan agreement states whether you are at all entitled to repay the loan ahead of time, so does the procedure and the price for it. What the redemption fee is on depends on the individual loan provider and loan agreement.
In some loan providers, the amount is symbolic, in others it is a higher fixed amount, while in others it is again a percentage of the loan’s remaining size.
Is it worth repaying a loan ahead of time?
Basically, it will always be a good idea to pay off a loan ahead of time as it will save you interest. In addition, it gives air into the economy to get rid of a monthly installment on a loan.
However, there are exceptions where it is actually a bad business for you to pay off your loan. This is the case if the loan repayment fee is higher than the remaining expenses of having the loan. Typically it will be if you have a low interest rate loan and there is not much of the maturity remaining.
If you want to pay off your loan, you should always check if it can pay off at all.
Optional repayment of loans
Just as there are regular loan agreements with a fixed maturity, there are also loan agreements with an optional repayment date. That is, you decide for yourself when the loan will be repaid within a given period. For example, the free loans where the loan must be repaid within 30 or 60 days. When you repay within this period is entirely up to you – and if you exceed the date, the loan will automatically be converted into a loan with interest.
1 Can I repay my loan ahead of time?
- 2 Price on loan repayment
- 3 Is it worth paying off a loan ahead of time?
- 4 Optional repayment of loans