Many people prefer to use borrowed money to make large purchases. To do this, they draw up various loans offered by numerous banking institutions. With borrowed funds, you can buy real estate, a car or household appliances. The Bank gives the borrower a special payment schedule, according to which the necessary amounts of funds are paid monthly. If a person wants to cope with the loan in advance, then he can make additional payments. Borrowers should know what the early repayment of a loan means, how this procedure is performed, as well as how interest is recounted and insurance is returned. If people really have free cash, then they can reduce the overpayment on the loan.
What does early loan repayment mean?
It is represented by a process in which people deposit money outside of payments defined by the bank in the payment schedule. The procedure can be partial or complete, and in the second case, relations with a banking institution are prematurely terminated. This process allows you to save a fairly significant amount of money, as the amount of interest on the loan is reduced.
Borrowers often have different questions regarding the early repayment of a consumer loan, car loan or mortgage. They do not know how interest is recalculated, and whether insurance can be returned.
Early repayment types
Often, early repayment of the loan acts as an effective way to restructure the loan. To do this, a new loan is issued at more favorable conditions. The money received is used to repay old loans. Under such conditions, it is possible to combine several loans, and the credit load is also reduced.
What does early loan repayment mean? It is represented by the early termination of the agreement between the bank and the borrower. The procedure can be performed in two forms:
- partial repayment, in which only a small amount of funds is paid, therefore the main debt is reduced, but the citizen still remains a borrower of a banking institution;
- full repayment consists in depositing the full amount of the principal debt; therefore, the loan agreement is terminated ahead of schedule.
In 2011, Federal Law No. 284 was amended based on which banks now do not have the right to fine their borrowers if they decide to repay an issued loan ahead of schedule. Additionally, banks cannot charge any interest on the received early amounts.
But on the basis of this regulatory act, borrowers have a certain obligation. They must warn the bank employees in advance of the decision made, for which a written application is transmitted 30 days before the required amount is paid.
Full repayment of a loan
Early repayment of a loan at Sberbank can be carried out at any time, but it will be necessary to notify the specialists of this banking institution in advance of the planned event. If a person has a large amount of funds, then he can fully repay the loan ahead of schedule.
For full repayment of the loan you need to have an amount equal to the size of the main debt. Bank employees are warned of such a decision in advance. In the end, you can get a certificate on closing a loan from bank employees. If the loan was issued for the purchase of housing, then the burden in the form of collateral is additionally removed.
Partial
This option involves making a small amount of funds, which is not enough to fully repay the loan. After that, people continue to transfer money to the bank in the form of monthly payments. But due to the introduction of an additional amount, the monthly payment is reduced or the loan term is reduced.
After the early repayment of the loan in Sberbank, the payment schedule is reorganized, as well as interest recount. Therefore, borrowers themselves must contact a banking institution to obtain new documentation.
Legislative regulation
According to Art. 810 Civil Code, each borrower has the right to early repayment of the issued loan. Moreover, the type of the loan does not matter. Restrictions may be provided only by an agreement drawn up between the borrower and the bank, but they must not contradict the requirements of the law. In Art. 810 CC states the need for early warning of bank employees about the decision.
According to the Federal Law No. 353, banks have the right to independently decide when exactly the borrowers will be able to deposit additional amounts. The procedure can be performed at any time or when debiting funds in the form of a monthly payment.
Calculation Rules
People should not only know what the early repayment of a loan means, but also how it is correctly calculated. In this case, they will be able to control the employees of the banking institution. In practice, there are often situations when bank employees accidentally or intentionally make mistakes, so the main debt is not reduced.
For self-calculation, you can use special online calculators that are freely located on the Internet. It is enough to enter information about the size of the loan and the main debt in them, as well as the amount that is paid ahead of schedule. As a result, the desired monthly payment amount will be obtained, which should be less than the current payment.
Process rules
The terms of early repayment of the loan may vary slightly in different banking institutions, so you should first study the provisions of the loan agreement. Some banks change the loan term, while others prefer to reduce monthly payments. Funds can be deposited at any time or only on the date of payment.
Previously, the borrower must warn the bank that it intends to make an early repayment of the loan. Does the term or amount change? Exact information can be found in the loan agreement. Standard process rules include:
- each borrower can repay the loan partially or in full;
- banks are required to rebuild payment schedules;
- in many institutions, early repayment requires an amount in excess of the monthly loan payment;
- a miscalculation of the amount of debt should be carried out not only by the bank's employees, but also by the direct borrowers, so that they can verify the correctness of the calculations;
- if a citizen decides to pay an early amount, he must first draw up a written notice that is transmitted to the bank 30 days before the appointed date;
- it is not allowed for the bank to charge any interest or penalties to the borrower for these actions, since in this case a citizen may file a complaint with the Central Bank or Rospotrebnadzor;
- you can start repaying the loan ahead of schedule literally a month after receiving it;
- if the loan is fully repaid, it is necessary to take a certificate from the bank about the absence of debt, since if the borrower remains to owe even a small amount of funds, this can cause litigation and a deterioration in credit history.
When making early amounts, it is important to carefully study the provisions of the loan agreement. Often in this document, banks intentionally indicate information that violates the requirements of the law. Under such conditions, citizens may not take this information into account, therefore they can focus solely on legal requirements.
Is it profitable to repay a loan ahead of schedule?
Many people think about whether to repay a loan ahead of schedule. Not always this procedure brings any profit. Features of the process include:
- if it is difficult for the borrower to cope with large monthly payments, then when making a large prepayment, he can expect a significant reduction in the amount paid;
- under such conditions, the credit burden is reduced by reducing interest transferred to the bank;
- recalculation refers exclusively to future payments, therefore, funds paid for past periods are never returned to borrowers;
- In any case, the bank makes a profit from lending, so the funds originally received are used to repay forfeits, penalties and arrears, and only then the main debt decreases.
Reviews about early repayment of the loan are mostly positive, so people with free cash often take this opportunity to reduce their credit burden. Some people argue that if a mortgage is issued, then early repayment is not profitable. Since funds are issued for the purchase of real estate for a really long period of time, during this period it is becoming easier and easier to pay loan funds due to inflation. Therefore, it is advisable to repay only short-term consumer loans ahead of schedule.
How is the procedure performed?
Initially, the borrower must find out what is needed for the early repayment of the loan. The procedure is considered quite simple, therefore, for its implementation, the following actions are performed:
- a cash amount is prepared, the amount of which exceeds the monthly loan payment;
- Next, you need to find out about the bank employee about when exactly you can deposit these funds;
- you can get an application form from a specialist of the institution, which indicates the need for early repayment of the loan;
- by the indicated date on the account, from where the funds are withdrawn to repay the loan, there must be the necessary amount for writing off;
- You can deposit money into your account through the bank's cash desk, ATMs or money transfers.
On the appointed day, the declared amount will be withdrawn from the account, which will be used to pay off the main debt.
Is there any compensation?
Recalculation of interest upon early repayment of a loan applies only to future payments, so no compensation is assigned to borrowers. Until 2011, even banks sometimes levied fines or interest from customers, but now only the credit load is reduced.
But if people took out insurance to apply for a loan, then they have the right to receive some of it if credit relations with the bank are terminated early.
Can I get insurance back?
If a loan is fully repaid ahead of schedule, the borrower will have a question about how to get insurance upon early repayment of the loan. The fact is that an insurance policy is usually purchased for the entire loan term. Since the credit relationship ends in advance, the person has the right to request from the insurance company the recalculation and return of a certain amount of funds.
To obtain such compensation, you need to contact the organization where the insurance policy was purchased. A statement is drawn up, to which a certificate from the bank is attached, confirming the premature repayment of the loan. A recalculation is made, as a result of which the applicant receives the due amount of funds. It can be issued in cash or by transfer to the applicant’s bank account.
Process consequences
If a person regularly abuses the early repayment of various loans that are issued at various banks, this can even lead to negative consequences. According to the legislation, no penalties are provided for this, but the banks themselves have a negative attitude towards such borrowers, since they will not get a significant part of the profit from them.
Therefore, such borrowers are included in a special list, as a result of which, when applying to different banks with an application, they are refused to receive borrowed funds. In addition, the scoring score deteriorates, which is determined by bank employees before issuing a loan to a potential borrower.
Therefore, although early repayment of loans is considered a profitable process for each person, this process should not be abused. Sometimes such actions do not bring any profit at all, for example, if a mortgage is issued for a long period of time.
Conclusion
Any person under the law can repay loans ahead of schedule. The procedure may involve full or partial repayment of the loan. For this, it is important to notify the bank employees of the decision 30 days before making the prepared amount.
With the full repayment of the loan, citizens can expect to receive a certain amount of funds from the insurance company where they bought a personal insurance policy at the time of obtaining a loan. If a person abuses early repayment, this can cause banks to constantly refuse to issue loans.