Before answering this question, it is worth remembering that a credit is a contract that legally binds the lender and the borrower. The latter by signing the loan agreement undertakes in particular to pay the monthly payments until the end. The repayment of a loan in advance is therefore to break a contract.
Reimbursement of a consumer credit
No penalty is normally provided if you repay an advance credit. Do not hesitate to sell them if you have the opportunity, especially if the rate is high. Check beforehand in the offer that you sent the bank if a minimum payment is required in case of partial payment.
Give priority to permanent credits, which are usually offered at particularly high rates.
Reform and penalties
Since May 1, 2011, the reform on consumer credit allows banks to apply penalties beyond an annual threshold of reimbursement of a credit of 10,000 euros per period of 12 months.
This penalty is however capped at 1% of the amount refunded. If the payment is made within one year of the loan term, the penalty is then limited to 0.5%.
Early repayment of a home loan
Unlike consumer loans, repaying an early mortgage can cost you money. Indeed, the banks provide in their loan offer to pay penalties in case of early repayment that can reach six months of monthly payments within the limit of 3% of the outstanding capital.
Good to know: Uncapped floating rate credits often have lower penalties, around 1.5%.
If you have to take out a mortgage, consider negotiating the penalties with your bank right from the start. However, expect a difficult discussion because they are reluctant to cancel the benefits in case of repayment of an early loan. They will also systematically refuse to cancel them in case of redemption by the competition.
The case of rental investment
Think about the tax aspect if you plan to prepay a loan related to a rental investment. Loan interest is deductible from rental income.
If you pay off your loan after selling your property and you find yourself in the following cases, you must pay no penalty to the bank
- Professional transfer or cessation of activity of the borrower or his spouse
- Death of borrower or spouse
Should we repay a loan by anticipation?
In each situation his solution would be tempted to answer. Because it is the financial situation of the borrower that can determine whether or not you must prepay a loan. Once again, if it’s a question of paying a very expensive revolving credit, obviously do not hesitate.
However, if you have taken out a mortgage at a favorable rate on which there are few deadlines, we advise you to think twice before paying it back. It may be more interesting to keep your capital and to invest your money.
This helps to keep cash and achieve a better financial operation. Before deciding, so you have to calculate, between savings and credit is the most profitable.
It is entirely possible to partially repay a loan in advance. However, it will be necessary to comply with the rules dictated by the bank, including the minimum advance payment.
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