Early repayment of loans or how to pay off loans in advance .Why pay off a loan in full or in part?
This chapter is dedicated to the extinction of loans but not to any extinction, but rather to early extinction . First of all, there is a difference between extinguishing a loan and other types of loans such as a mortgage, but it is our duty, to stay on the topic, to deal only with the loan termination methods, postponing the other types of extinction to other locations. Therefore, the early or partial repayment of a loan is required by law and with this, no bank or financial institution can deny it. In any case, if the standard contract form of adhesion establishes the negation and / or the renunciation of the right to extinguish in advance these are not opposed and the faculty to extinguish the loan in advance or partially is totally unaffected . So, how to pay off a loan in advance ? The early termination procedure varies depending on the institution that financed you, but in substance it is identical for all institutions. In some cases there is no formalities and just a verbal request with which you simply ask to pay off the loan in advance, in other cases they do fill out an early repayment form that can be both paper and computer via the web. Whatever the means, the end remains the same: to obtain, in writing, the analytical accounting of the amount necessary to extinguish the loan. To facilitate this task or to have a fairly precise idea of the early repayment charges we have prepared a series of calculators that will facilitate you in this sense which can be reached through the links at the end of this article. The question we ask ourselves is: is it convenient and when (with the “d”) to pay off a loan ? The answer is articulated and deserves a premise: to extinguish the loans having paid all and all installments is the most physiological way (certainly for banks) to conclude the loan because the physiological conclusion represents the maximum income for the lender. In fact, the latter has all the interest for the debtor to pay up to the last installment and, therefore, the early repayment constitutes a sort of “loss of earnings” for those who provided the loan. Thanks to this motivation, the “notorious” depreciation is applied to the French which involves an exaggerated load of interest expense during the start of the payment, period, this, where the probabilities of extinction are very rare because the debtor is short of liquidity ( otherwise he did not ask for the loan!). While, the interest is almost negligible towards the end of the repayment as is reflected in the amortization of loan installments .
What does this mean? It is true that early extinction, even partial (but it is better total), agrees , but it is relative convenience, that is the maximum savings if the extinction intervenes in the initial moment of financing, vice versa, extinguish in the end brings very few benefits because the most of the interest has already been paid and the installments are mainly made up of the capital. From this we can establish an assumption. The advantage of the partial or total early repayment that is inversely proportional to the past repayment period: the sooner one is extinguished the more you save; farther away, the saving resulting from the extinction is extinguished. Indeed, the extinction made in the last installments is practically useless . For the rest there is no distinction between early repayment inpdap rather than a personal loan or not. To conclude, if you have the possibility of extinguishing a loan in advance, do so as soon as possible in order to take advantage of the maximum convenience of the early repayment itself.