Is overpayment of the loan profitable?
October 22, 2019
We are increasingly using financial products such as loans and credits. Especially when we are facing sudden, unexpected expenditure, for which we lack funds. Among the questions that some people face after (or before) the signing of the contract, this is about the possibility of early repayment of the debt, as well as whether it is profitable. It often happens that we need cash immediately. After some time, it turns out that we could have decided to pay a much shorter repayment period. In such a case, the overpayment of the loan may be the solution.
Why are Poles in debt?
Poles belong to one of the most indebted nations in Europe. This situation continues to deteriorate, we are more and more willing to use the services of both traditional banks and non-bank loan companies. The average debt of our countryman is over $ 40,000. The total amount of Polish debtors is a trifle, $ 580 billion.
The reasons for the high debt of Poles include low economic awareness. Rarely do subjects appear in schools that are designed to teach students knowledge of the basics of household economics and managing their own budget. Very many young people are unable to develop proper saving habits in the future. What is worse, many people do not respect the money they have earned, carelessly managing it.
For an increasing number of Poles, liabilities incurred in banks and loan companies are normal. We cannot imagine buying an apartment or building a house without a loan. The purchase of a car or new home electronics or household appliances is also often financed with money obtained from a loan. However, before we decide to take a loan or credit, we should carefully analyze the financial situation of our household, answering the question whether we can afford regular debt repayment.
Credit or loan overpayment – when can we reach for such a solution?
Monthly repayment of a loan or loan installment can strain your home budget. When we manage to save some cash, we wonder if it would be prudent to spend it on early repayment of our commitment. For many of us, having a loan or credit is related to stress, which is caused by responsibility and the need to pay off debts regularly. In most cases, both traditional banks and loan companies allow their clients to pay off their debts earlier. Information on this subject should be included in the contract.
Credit or loan overpayment versus formalities
Most financial institutions agree to pay their debts earlier. Some, however, can somewhat complicate the process of premature debt regulation. So let’s find out if the loan or credit provider has its own early repayment policy. In some cases, premature settlement of obligations is only possible after a certain period of time from the date of signing the contract. This is especially noticeable in mortgage matters, when early repayment may only be possible after several years. It should also be added that it is up to the financial institution to determine whether premature settlement of the debt will actually reduce the total cost of the liability. In some cases, this may not be cost effective at all.
What to look for when deciding to overpayment a loan?
There is no single scheme on how the overpayment process looks like. On the Internet, you can find tools that you can use to calculate the profitability of early repayment. However, it should be emphasized here that such calculations are for reference only and do not have to be final. The trend for overpayment of credits and loans has been noticeable for several years. Therefore, more and more financial institutions facilitate the calculation of the profitability of such a solution.
The basic document between the bank or loan company and the client is the contract. It should contain all the provisions regarding the possibility of earlier repayment of the liability. If there are no such records or we do not understand their content, it is worth consulting it with the representative of the institution, who should clarify any ambiguities for us. To do this, visit the headquarters of the bank or loan company, or call the customer service office (the number should be provided on the website of the entity).
Does overpayment of the loan or loan generate additional costs?
Overpayment of a loan or credit cannot always mean saving money. Some institutions only allow early repayment in the form of a double or triple installment, and not the entire commitment. This solution will actually speed up the entire debt repayment process, but it does not have to involve cutting the cost of the liability. As a rule, overpayment should not generate additional costs. There are, however, some exceptions.
Is an overpayment of a loan or credit worthwhile?
Some banks and loan companies include in the contract that early repayment is only possible if additional costs are incurred. Usually these costs are nothing more than a fee for the unused loan period. If it turns out that this fee is higher than the sum of commission and interest remaining to be repaid, it is best to give up the overpayment and pay the liability according to the schedule.
Nevertheless, more and more loan companies are enabling their customers to pay back loans early without incurring additional costs. Moreover, the customer can usually be exempted from paying part of the interest, so ultimately he will save on the loan. In addition, early repayment is a good solution if you intend to apply for a higher credit or loan in the near future. Then in the registers our previous loan will be marked as repaid and we will be free of debt.