How does early repayment work?
The moment you pay € 300 each month and pay € 20 per month in interest, you will pay € 240 in interest annually. If you pay off € 6,000 a month, the lender will miss € 20 (= € 400) for 20 months. This costs the lender money. The latter has drawn up a quotation in advance of the credit in which the exact costs have been drawn up. The € 400 deficit is not included in the total budget of the credit, so you must bear the costs. So early repayment costs money.
Do you still feel that early repayment is a good choice, for example because you simply want to pay off the loan as quickly as possible? Then it is important that you look at the terms of the loan. Here is recorded what happens when a loan is repaid earlier. This can vary from a fine, which you can read more about below, to an increase in administration costs.
How much can you pay off early?
The amount of the early repayment is different for every lender. In general, a minimum amount of € 500 is linked to the early repayment. The maximum amount that someone can repay in one go and per year is 10% of the remaining credit amount. With a remaining credit of € 50,000, a maximum of € 5,000 can be repaid early in one year.
Fine related to early repayment
It is customary for a lender to pay a fine when a customer makes early repayments. This is compensation for the costs that the provider misses when the loan is repaid earlier. The penalty for early repayment may be higher than the amount that you pay in interest per month. So there is a good chance that it is more expensive to pay off early than you have to pay the repayment plus interest costs month after month.
The amount of this fine varies. There are significant differences between the lenders. One bank imposes high fines and the other bank encourages early repayment and does not charge anything. It is advisable to check the conditions of the credit before the early repayment. The terms and conditions must explicitly include a reference to the fine when the lender provides the credit. The amount of the fine will therefore always be stated in the conditions.
Is early repayment beneficial?
With lenders where low fines or no fines are awarded, it is always advantageous to pay off early, in terms of short-term costs. In the long term it can lead to more income tax being paid at the end of the term of the mortgage. You pay an amount for the difference between the amount of the premium payment credit and the amount of the remaining mortgage amount.
If you currently have a savings account with capital, it may be advantageous to repay early. The savings interest has been incredibly low in recent years and, in combination with the inflation and taxes that you have to pay, yields little. In that case it is better to repay the credit early, because the interest rate on the credit is at least 6%. You can save a considerably large amount in this way and ensure that your financial picture will look different in 10 years’ time than was prepared in advance – this way you will save a considerable amount.
Make a proper assessment yourself
The advantages and disadvantages of early repayment are mainly related to personal situations. It is not advantageous for everyone to repay early, for example because the fine is high and the income tax is higher. For people who currently have a high saving capital in hand, early repayment is interesting and can save a lot of money. Therefore, consider for yourself whether it is a good idea in your situation to pay off your credit before the agreed term has expired.