In the life of every person there comes a time when he decides to take out a loan. Be it to finance something urgently needed or just to treat yourself to something particularly beautiful.
The right thing must now be filtered out of the many forms of credit offered. After all, the loan should be exactly what the borrower needs. The choice is not always easy. Not only the form of credit has to be considered, as well as the monthly installments, but also the term of the loan.
The borrower should be aware of whether they are really willing to fund this loan for many years to come. With fixed interest rates over several years, it is often not only difficult but also very expensive, to terminate this loan prematurely or to reschedule. If the borrower wants to be able to pay off their debts early, a loan with the option of special repayment is certainly the best choice.
What does special repayment credit mean?
The best-known loan is the installment loan. When concluding such a contract, the duration, i.e. the term, as well as the amount of the monthly installments and the interest are determined in advance. The amount of the installments to be paid is made upon the one hand of the interest to be paid and on the other hand of the percentage of the planned repayment. It can be one, two or even more percent.
The repayment amount is not only based on the income of the borrower. The sum is taken up and the term must also be taken into account. As a rule of thumb, the shorter the term, the higher the interest rate. Since these calculations are very difficult, it makes more and more sense to get advice from a well-trained specialist so as not to experience any unpleasant surprises.
Since no one can predict how his life will develop in terms of salary, possible inheritance or other sudden money blessings when a loan agreement is concluded, the option of special payments for the loan taken out becomes interesting after all these calculations. This option means that, if available, more than the fixed monthly rate can be paid.
But be careful, special repayment is not the same as special repayment. This form of repayment option must also be specified when the contract is concluded. There will be virtually no bank that will get involved later.
The different types of special loan repayments
The demand for a flexible structure when repaying loans clearly goes in the direction of a possible earlier replacement of the loan agreements. Credit institutions are increasingly responding to this request and are increasingly offering loans with special repayments. The offers differ, however, in a few things that have to be observed and inquired about beforehand.
In view of the fact that lending institutions are also dependent on profits, it is perfectly understandable that they want to keep the possible loss of interest as low as possible. For this reason, some offers go in the direction that special payments can be made, but these payments only reduce the term of the loan. The consumer has no further advantages.
The advantage of the provider is obvious. Despite the reduction in the term, the interest income from this loan remains constant. For the borrower, however, this means that he ultimately has to pay more interest, since the total amount was ultimately calculated over a longer period.
The banks now offer particularly small loans with the option of special repayment. With these relatively small amounts, the credit institutions are happy to grant their customers the right not only to repay the remaining amount via the monthly installments but also to be able to make interim payments. However, these special payments are usually limited to a certain amount or 5 to 10 percent of the loan amount.
Some of these contracts also stipulate that there is either only a single, predetermined date for a special repayment or that a certain minimum amount must also be met. That could be, for example, 800-1000 USD or alternatively the amount of 2-3 monthly installments. Although this brings little benefit to the borrower, it can reduce the term a little, but this type of special repayment is often not really flexible.
Which form of contract has the greatest advantages for the borrower?
The rule that special repayments have to be set when the contract is concluded only applies to loans with a fixed interest rate. This right is granted from the outset for loans with variable interest rates . Especially when financing real estate, the borrower should make sure that a special repayment right is included in the contract.
Given that a real estate loan means a very long term and a fairly large sum, it is not unlikely that the borrower will always have a certain amount of money left over the years that could flow into the repayment. For this reason, it is necessary to ensure that not only early repayment of the loan would be possible, but also special repayments at any time and regardless of the amount.
Furthermore, the contract should include that neither a processing fee is charged in the event of early redemption of the liability, nor that in the case of special payments, interest is calculated back for an interest that is not required (due to the shortened term). If all these points have been taken into account, the borrower can look to the future with little concern.