Early repayment of installment loan – advantages and disadvantages, is it profitable?
Each borrower has the right to repay the contract earlier. He can do it at the time of his choice during the entire contract period. This is guaranteed by the legal regulations contained in the Consumer Credit Act. These provisions apply to both bank and non-bank loans.
In a more stable financial situation, it is worth checking whether early repayment of the installment loan proves to be more profitable than paying back the loan in accordance with the agreed schedule.
Is early repayment of the installment loan worthwhile?
Each loan agreement contains provisions specifying the fee for the temporary lending of the agreed amount. It is calculated in advance and repaid throughout the duration of the contract. In the event of an earlier repayment of the entire loan, this period will be shortened, and thus the cost of borrowing should be reduced. In this situation, the lender is obliged to recalculate the cost of the loan so that the customer only pays for the period in which he actually used the borrowed funds.
However, not always paying the installment loan early reduces its costs. Lending companies include in the contracts an appropriate entry specifying the amount of penalty for early repayment of the liability. Most often in the form of commissions or other additional fees. Because lenders earn mainly on interest, the first few months earn them the most profit. Therefore, the sooner the customer decides to repay the liability, the higher the additional early repayment fees may be. Therefore, when taking out a loan from a non-bank institution, you should carefully read the conditions under which it is granted, before you sign the contract to know all the details that may be relevant not only in the case of late repayment of installments, but also earlier repayment of the entire loan. If the contract does not contain a provision regarding the possibility of earlier repayment of the obligation, it is better to take advantage of the offer of another company.
In the case of an already signed contract, the customer should look for it in the relevant records or contact the lender to find out what fees or penalties will result in early repayment of the installment loan.
Early repayment – advantages and disadvantages
Early repayment of an installment loan is usually a good solution, especially for long-term loans. Shorter use of borrowed funds means lower fees and exemption from some interest, and thus a lower total cost of the loan. Earlier repayment of the loan also means immediate relief of the household budget and release from the obligation to observe the date of the next installment on a monthly basis. This is a huge relief, especially after a longer time requiring a more modest use of funds and dependence on a set repayment schedule. Early repayment of the installment loan also allows you to avoid any negative entry in the BIK and remain a reliable customer in the eyes of future lenders.
Early repayment of the loan also has disadvantages. In addition to the additional fees that may make settling your liability ahead of schedule, it may be unprofitable, returning your money ahead of time limits the freedom to use extra cash. If, as a result of random events, there are problems with financial liquidity or unexpected expenses for which there is not enough cash, you may need to take another loan, which will result in further costs. Therefore, before making a decision, it is necessary to calculate whether earlier repayment of the installment loan will bring savings or additional costs, and also consider whether it is profitable in the event of savings.
In case of doubts related to early repayment of the installment loan, it is worth using the professional advice of a specialist – a group specializing in obtaining difficult loans, consolidation of payday loans and credit cards. Professionalism and many years of experience will help find a solution tailored to the current situation of each client.