It is possible that your standard of living may change favourably over the years or that you may have inherited a large sum of money. If you have an outstanding loan, you may be tempted to repay it before it comes due. But before making such a decision, it’s important to make sure whether or not repaying the loan before it comes due is advantageous for you.
Total or partial repayment?
Did you win the lottery or did your uncle from America leave you his entire fortune? Congratulations! And for fear of squandering this large sum, you plan to repay your loan. You should know that it is possible to pay back your loan when it is due, whether it is a real estate, consumer, personal loan, etc. Moreover, you have the choice between a partial repayment and a total repayment. In the first case, the monthly payments that follow will be recalculated and can be lowered. However, it is still possible to reduce the repayment period or even lower the monthly instalments while reducing the number of instalments.
In the second case, it is essential to know the amount of capital remaining due before considering a total prepayment. To do this, you can request a statement from the lender or consult the amortization table of your loan directly. When the repayment is made, your debt with the bank is then definitively extinguished.
In which case is repayment before maturity interesting?
It is important to note that the costs of early repayment of a property loan are capped at the lower of 3% of the outstanding capital and 6 months’ interest at the average credit rate of the capital repaid. It is therefore essential that the amount you propose to repay is large enough so that the gains you obtain are greater than these costs. If this is the case, you can move forward with your idea of repaying the loan on time. If not, it is better to give up and invest your money somewhere else in order to make it grow. In any case, early repayment is advantageous as soon as the interest rate on the credit is higher than the rate of inflation.
There are therefore certain criteria to be taken into account when repaying the loan when it becomes due. These are the interest rate of the loan and its duration, the inflation rate and the amount of the repayment indemnity.