Special repayment rights are mainly to be found in different variants of long-term installment loans. Thus, the banks give you the opportunity to make special payments or to repay the remaining debt prematurely.
The advantage is obvious: faster repayment means shorter term and thus less interest. Nonetheless, special repayments should not be rushed because many banks charge fees.
Options for special repayment on loans
Installment loans are mostly medium to long term. Both maturity and installment are fixed from the outset, as special redemption rights are granted primarily for fixed rate loans. For loans with variable interest rates, unscheduled repayments are handled much more loosely, but this also depends on the respective bank. That way, banks can calculate and plan their interest income very precisely.
If a loan is to be repaid prematurely in whole or in part, not only is its calculation invalid. Interest income is also reduced, which is referred to as margin loss. Because banks generate their profits mainly by the fact that they pay interest on deposits lower than loans. The difference is called the margin.
The longer a loan runs (eg loans with 120 months), the higher is typically the interest rate and thus the profit. As a result, the sooner a long-term loan is repaid, the more money the bank loses. For this reason, many banks calculate so-called prepayment penalties in such cases in order to at least partially offset the margin loss.
Which costs that are exactly, you can take from the terms and conditions of the bank. However, it is better if you point out to the bank employee right when applying for a special repayment option. In addition, there are also a number of loan offers where special repayments are free of charge in a given context.
An example can be found in long-term loans: Here it is often possible to repay 5 to 10 percent of the net loan amount per year without incurring any costs. An important role is played by the fixed interest period. So it is common for real estate loans that after this period, a follow-up financing is agreed. Instead of this, of course, the loan can be completely repaid. During the fixed interest period, banks can limit the amount of all unscheduled payments to a maximum.
Meaningful or not?
Although most credit agreements also include prepayment penalties, which have to be paid in case of special repayment, you should always be able to save money with a special repayment. Therefore, you should look for special offers, where partial or full special repayments are not only permitted, but also free of charge if possible.
Especially with real estate loans, whose terms can extend over several decades, can be saved by special repayments considerable sums of interest. It is even cheaper with a home savings loan, because special repayments are free of charge at any time and in any amount.