Prepaid: when is it best to do it for maximum financial impact



Most people take out a loan when they need a lot of money to buy goods or pay for certain services that require a large investment, such as vacations, medical services, or home or car repairs.

What often happens is that the amount borrowed is for a longer term, and if the financial situation improves, people can pay off the loan early and avoid these rather high interest rates. However, it is recommended to take this step within a certain period of time to get the most out of it.

Next, in this article you will learn about the prepayment procedure for a loan, what commissions can be claimed for this process, and what are the main advantages of this operation and when it should be carried out.

1. The procedure for early repayment of a loan

Early repayment is the method by which a customer repays part or all of the loan balance before the contract term or before the contract expires.

Prepayment is made with the consent of the bank and the conditions must be specified in the credit agreement. Typically, you’ll need to contact the institution offering the loan to calculate the down payment. Reimbursement schedules will vary based on credit duration, amount, and your preference.

Even if you get your loan over the phone or online, your prepayment can be done just as quickly.

For the prepayment of a long-term loan, you have two options: a lower monthly interest rate or a lower credit term. Although banks prefer to lower rates to maintain their rates, it is better to opt for shorter payment terms so that payments can be made sooner, saving you many months of interest.

If your calculations are correct and your monthly budget allows you to pay the same amount, consider using this option for a shorter credit term to take advantage of the benefits of prepayment.

If you already have a Creditfix loan and need more information about a down payment, you can contact the financial institution directly and they don’t have any down payment fees.

For most loans made by banks or non-bank financial entities, early repayment is conditional on the payment of a commission.

2. Early repayment commission

In Romania, after 2010, the law governing bank or non-bank financial institutions limited the prepayment commission to between 0.5% and 1%. In addition, if the loan you contract is at a variable rate, you should not stipulate any commission in the contract.

For fixed-rate loans, whether non-bank or standard loans, early repayment will be made with a commission of 1% of the amount, if you wish to carry out the operation from the first year of the loan.

If you have already passed the first year of credit, your reimbursement commission must be 0.5% of the amount. Verify this information in the contract before signing.

In addition, if you observe irregularities related to these commissions in the already signed contract, you can make a declaration under the name: «Commission for early repayment – unfair clause» before the ANPC, which has the obligation to investigate these situations. Of course, as a first step, it is best to contact the creditor bank or financial institution to request clarification.

3. Prepaid benefits

Prepayment of a loan has many benefits for the borrower. Regardless of the amount lent, by repaying before the due date, the bank no longer charges monthly interest on the amount disbursed, and the client simply pays a commission based on what was previously discovered.

In addition to this advantage, you can enjoy several advantages, especially if you pay in advance at the beginning of the credit period.

Most borrowers opt for a declining repayment plan, which means that the total interest rate paid each month will decrease over time. But the downside is that during the first loan period (like the first year of home loan, it takes 25-30 years), customers have to pay higher interest and a smaller loan amount when they pay in installments. .

That is why for this type of loan it is best to repay the first 5 years of credit in the first year. That way, by shortening the term, you’ll pay more on the line of credit and reduce the amount of interest each month, allowing you to pay off the amount you borrowed faster and at a lower cost.

In conclusion, if at any time you took out a loan and now you have the means to repay it, even in part, do not hesitate to do so. While this may seem like a big expense, it will save you money in the long run.

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