How to repay my loan early?

All credit brokers are often faced with this question from their clients: “Can I repay my loan in advance?” In fact, it may happen that a borrower wishes to repay their loan in advance, that is to say, in an anticipated manner, in other words, before the end of the credit contract. Simulate your loan online Life events can encourage the early repayment of a loan: one immediately thinks of an inheritance, but it is not the only reason. A job change, a new cohabitation, winning a sum of money, a life insurance policy maturing, capital gains from investments, etc., are all happy and favorable events that can prompt the borrower to repay their loan early.

Principle question: can one repay their loan in advance?

In other words, can the borrower repay their personal loan or mortgage before the end of their contract? The answer to this question is simple. The law allows any borrower to repay any type of loan at any time during the life of the contract.

Financial question: is it always advantageous to repay your loan in advance?

It is not necessarily advantageous for the borrower to repay their loan in advance. We will understand better based on a concrete example: imagine a prospective borrower taking out an auto loan for an amount of €35,000 to buy a new luxury vehicle. To finance such a purchase, as it is a new vehicle, the interest rate will range from 3 to 5%. If the person concerned inherits a large sum, it might be more interesting to invest this money in an investment that can, in the long term, yield more than an interest rate of 3 to 5%. Real estate, for example, yields an average of 10% per year. Similarly, some corporate bonds come with interest rates of nearly 7 to 8%. The interest rate of the loan will therefore be a determining factor, and the solution to this question will be a matter of personal analysis.

Early repayment in terms of personal loans

The borrower has the right, at any time, to repay in whole or in part the remaining balance of the capital due in advance. In this case, they are entitled to a reduction in the total cost of the credit by an amount equal to the interest and fees due for the remaining duration of the contract. They notify the lender of their intention by registered mail at the post office, at least ten days before the repayment. In practice, most brokers are satisfied with a simple phone notification. If the period between the early repayment and the agreed contract end date is more than one year, this compensation amounts to 1% of the capital amount subject to early repayment. If the period does not exceed one year, the compensation amounts to 0.5% of the capital amount subject to early repayment. The lender communicates to the borrower the amount of compensation claimed by mail. This communication includes the calculation of the compensation. The compensation cannot exceed the amount of interest that the borrower would have paid during the period between the early repayment and the agreed credit contract end date. The repayment made will be applied first to the due amounts and the reinvestment compensation, and the balance will be applied to the remaining balance due on the day of payment. No reinvestment compensation is due if, by application of article 85, 86, 87, 91, or 92 of the law of June 12, 1991, the borrower’s obligations are reduced to the cash price or the borrowed amount, or in the case of a repayment in execution of an insurance contract conventionally intended to guarantee the repayment of the credit.

Early repayment in terms of mortgage loans

Early repayment in terms of mortgage loans is also possible at any time during the life of the mortgage loan contract. In this case, the borrower will owe a capital reinvestment compensation equivalent to 3 months. The amount of interest will correspond to the amount taken from the amortization schedule corresponding to the month during which the repayment took place. Simulate your loan online