The early repayment of a loan is an opportunity that allows you to close your debt with the bank or with the financial intermediary that has granted you a loan. Let’s see how early repayment of personal loans works and when it is convenient to pay off the loan in advance.
How does it work
Are you tired of paying your loan installments every month and do you have the liquidity to pay off the loan? You can do this by returning to the legal entity that provided the credit both the residual capital and the interest accrued up to that point. Therefore, you must ask the bank or the financial intermediary with which you signed the loan agreement for the so-called extinct count .
It is a document that is updated upon payment of each installment and which allows you to know the precise amount of the residual capital to be paid and the interest due to the lending institution.
When can the loan be paid off?
The loan can be paid off at any time . There is no precise time frame that you need to respect. You can make the extinction early, centrally or even shortly before the end of the loan agreement.
How much it costs to pay off a loan
Paying off a loan is an operation that has costs. In particular, it is necessary to pay a penalty which cannot exceed 1% of the residual debt. At this point you are wondering why pay this penalty? Thanks to this penalty, the bank protects itself from the income it does not get on the interest of the installments not yet paid.
When it is convenient to make the early repayment of a loan
The time factor plays a fundamental role in assessing whether it is convenient to make the early repayment of a loan. In general, the residual capital should be paid at an early stage of the loan agreement. In fact, at the beginning, the cost of the loan mainly affects the interest portion and not the capital portion.
On the contrary, as we move forward, the share of interest decreases and that of capital increases. In conclusion, it is better to pay off a loan at an early stage as there can be significant savings on the interest to be paid to the bank.