The early repayment of a loan serves to repay in advance the payment of the remaining installments to the bank that has provided the loan. After having subscribed a loan, which will naturally expire after a certain period of time, it is in fact possible that a new availability of liquidity or an improvement in its economic conditions will allow the user to repay in advance what is missing of the capital to be repaid. In this way, the weight of the periodic repayment of the installments is freed earlier than expected.
But with early repayment of the loan , can there be economic benefits and gain?
First of all it must be emphasized that for simple loans the rules concerning mortgages do not apply, which are very advantageous for consumers. There are therefore certain costs for the early repayment of a loan. The contract that is signed at the time the requested amount is paid provides for the payment of a penalty , in the event of early repayment. This clause is inserted to avoid excessive losses on the part of the bank: when the loan is extinguished, in fact, the bank should not recognize the interest that would be paid on subsequent installments. At first glance, therefore, it is a saving for the consumer, who will pay interest for less time.
However, this is not necessarily true. First of all, it must be assessed whether the penalty exceeds the amount that would be paid in interest if the original amortization plan were respected. However, if the residual capital is less than 10,000 euros, the bank cannot impose any additional payment and if the remaining amount is higher, the penalty may not in any case exceed 1% of the residual debt . The same ceiling is provided if the total loan exceeded 10,000 euros and at the end of the contract there is more than 1 year. In case of less than one year, the penalty can be up to 0.5%.
Furthermore, the methods for calculating the installments must be considered. If, as usually happens in Italy, the calculation is carried out using the French method, the first installments provide for a higher interest rate than the capital one. This means that the last installments will be composed of less interest and therefore repaying the financing in advance will lead to lower savings than expected. It is worthwhile to repay the loan when you are at the beginning of the loan.
In any case, the early repayment of the loan has important practical advantages: however, our advice is to carefully evaluate the convenience.