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Concept of a Reinvestment Indemnity
The reinvestment indemnity corresponds to the difference between, on the one hand, the interest that the bank would have received until the end of the loan if the loan had not been repaid early and, on the other hand, the interest it can receive by reinvesting the capital repaid early on the interbank market.
In fact, in the event of early repayment, the lender recovers the capital but will no longer have interest.
Therefore, they will experience a loss of earnings for the remainder of the original loan term.
To compensate for this loss of earnings, they will ask the borrower for a reinvestment indemnity in replacement of the capital.
Mechanism
The law provides that in the event of full or partial repayment of a loan with interest, no reinvestment indemnity can be claimed from the debtor, apart from the repaid capital and accrued interest, in an amount exceeding 6 months of interest calculated on the repaid amount at the rate set by the agreement.
In practice, the lender will insert a standard clause in the loan contract stating that the indemnity cannot exceed 1% of the capital repaid early when the contract still runs for more than one year or 0.5% of the capital repaid early when the contract still runs for less than one year.
The reinvestment indemnity cannot exceed the interest you would pay if you did not repay early.
If you repay early during a period when the debit rate is variable, the lender cannot claim a reinvestment indemnity from you.
The consumer is free to repay all or part of their loan early at any time.
To do so, they must notify the lender of their intention by registered mail at least 10 days before the repayment.
Within 10 days of receiving the consumer’s letter, the lender will communicate to the borrower the amount of the claimed indemnity on a durable medium (simple mail, email) and specify the calculation of the indemnity.