Around a third of all households pay far too much for their loan despite low interest rates. A debt restructuring is helpful if it is well planned and carried out according to the credit conditions. You can repay a loan early throughout the year. But the beginning of the year is the most likely time to start the new year with improved financial management and eliminate unnecessary expenses. When you can pay off your loan early and when it is better to be patient, you will learn in this article. Only if you cleverly reschedule or cancel a loan, you will reach your goal and save money. Otherwise, when paying off a loan early, the bank may charge you interest for the interest payments it has lost.
FAQ on early loan repayment
When is it worth paying off a loan early??
It is certainly always worthwhile to pay off a loan early if it allows you to save money. An early redemption is worthwhile for you if the interest savings are higher than the costs for the early redemption.
Can you redeem any loan early??
In principle, loans can generally be paid off early. But the credit institution may demand compensation payments for the lost interest in case of early redemption. That's why it doesn't always make sense to pay off a loan early.
Optimizing private financial management and paying off a loan early – is it worth it??
This is important
In general, it is often worthwhile if you repay a loan early. The basis for saving money by repaying the loan earlier than agreed is the contractual basis and the term that you have complied with so far. If the interest savings are greater than the cost of early repayment, it makes sense to repay the loan early.
There are some differences related to the loan itself that should factor into the decision to pay early. In the case of real estate financing with a fixed interest rate of 10 years or longer, it is only worthwhile to reschedule for a more favorable loan once the 10-year term has elapsed and you can exercise your right to terminate the loan.
For other loans, it depends, for example, on whether you have agreed unscheduled repayments or pay a variable borrowing rate. In fact, you can always save with a low-interest loan and pay far less interest to the bank than is the case with an old loan. Rescheduling is worth considering in the case of a frequently used overdraft facility. This strikes with interest in the double-digit range and costs real money if you claim it regularly. Repay a Dispo loan early and reschedule it to a favorable installment loan is always worthwhile, especially since you do not pay any compensation to the bank when terminating the Dispo and can therefore decide freely at any time, pay off your loan early and save interest.
Tips before paying off a loan early
Before you take on all current loans and financing and want to pay off the loans early and save interest, take time to review the conditions. Compare debt rescheduling loans and installment financing on the web and find out how much savings potential you have with a change in bank debt.
When it comes to construction loans that have already been repaid for 10 years and can now be rescheduled, savings of several thousand euros are possible. But also the overdraft, consumer loans or a car financing can be cheaper if you pay the loan early and save the money for much too high interest rates. In the case of installment loans, you should know that the bank cannot demand more than 1% early repayment decision on the remaining sum. This means that if you save money despite the 1% by rescheduling, you should not think twice and can repay the loan early.
Tip
When making the comparison, note that you compare the interest of the old loan with the interest of the new financing when paying off the loan early. Here, you should not only pay attention to the debit interest rate, but also include the effective interest rate. Since credit fees have been banned since 2014, you do not need to factor in this item and, for smart savings, need only refrain from loans that are offered with a credit fee, today often hidden under a different name in the contract.
Repay the loan early and not pay interest (early repayment penalty) to the bank
Basically, you should plan the redemption of existing loans specifically. Far from an overdraft facility at the house bank, which is always more expensive than all other forms of loans, only a comparison and knowledge of your contract terms can let you cancel without unnecessary costs. You do not save money if you pay a loan early and the bank is entitled to recover from you the damage incurred in the form of lost interest. If you have concluded a contract with unscheduled repayment, you can repay the loan early and usually save interest via the unscheduled repayment option.
Today you can find numerous very favorable financing, on the basis of which the debt restructuring is always worthwhile and should be planned for the date from which you do not have to pay your current lender a prepayment penalty. With short-term loans, you should not think about rescheduling or paying off the loan early. It's not worth it, because the bank will charge you interest if you pay off the loan early. The interest in this case only increases the total cost of the loan and it is not very clever to become debt-free a month or two faster with this prospect.