Early loan repayment - is it worth it?
Both loans and credits stand out from other forms of financing business activity. In most cases, obtaining a loan is quick and does not require many formalities. The money can be on the borrower's account even within fifteen minutes of signing the contract - at least that's what the flashy advertising slogans of financial institutions say. However, a loan - like any debt - is a burden for financial liquidity not only for economic entities, but also for household budgets of private persons, which very often reach for additional cash. When in a better financial situation, it is worth considering whether the early repayment of the loan will not be more profitable.
What is a loan
Pursuant to Art. 720 § 1 of the Civil Code, by means of a loan agreement, the loan provider undertakes to transfer ownership to the borrower of a certain amount of money or items marked only as to the species. The borrower, on the other hand, undertakes to return the same amount of money or the same amount of things of the same species and quality.
Importantly, loans worth more than PLN 1,000 should be regulated by an agreement containing the principles of debt repayment.
According to Art. 723 of the Civil Code if the date of repayment of the loan is not specified, the debtor is obliged to return the loan within six weeks after termination by the loan originator.
In the case of cash loans, it is possible to incur a debt in the range of several hundred to even several dozen thousand zlotys. Among the offers of financial institutions, there are loans with very different interest rates, and as you know - this issue determines the choice. The higher the interest rate on the funds received, the greater the cost and burden on the budget.
Is early loan repayment a benefit?
There are times when the money invested is returned with an excess. In this case, it is not worth putting savings on deposits and delaying debt repayment. When the borrower is not sure what to do, it is worth making a calculation, which will be more profitable. With regard to loans for lower amounts - 1-5 thousand. PLN - early repayment may not be attractive, but in the case of higher amounts - savings begin to increase.
It is worth referring to the provisions of the Act of May 12, 2011 on consumer credit, where, in accordance with Art. 3 sec. 2, a consumer credit agreement is considered, inter alia, loan agreement. The consumer has the right to settle the financial obligation ahead of schedule in accordance with Art. 48-52 of the Act. According to the aforementioned regulations, the taxpayer may repay part or all of the liability at any time - so it is also possible to repay the loan earlier. On the other hand, the lender cannot make the early repayment of the debt conditional on its notification by the consumer.
Pursuant to Article 49, in the case of repayment of all (or part) of the loan before the date specified in the contract, the total cost of the loan is reduced by the costs relating to the period by which the duration of the contract was shortened, even if the consumer incurred them before the repayment.
In practice, early repayment of the loan should not involve additional costs, i.e. commissions or additional fees. However, the lender may request such a commission, but only in cases specified in the act and in a small amount. Pursuant to Art. 50, regulating this issue, it is possible to stipulate in the contract the commission for the loan repayment ahead of schedule, if:
- repayment is for the period for which the interest rate is fixed,
- the amount of the loan repaid within twelve consecutive months is higher than three times the average salary in the enterprise sector, as announced by the President of the Central Statistical Office in the Official Journal of the Republic of Poland "Monitor Polski", from December of the year preceding the loan repayment year.
On the other hand, if the period between the actual loan repayment and the date specified in the contract exceeds one year, the commission in question may not exceed 1% of the repaid part of the loan. If a given period does not exceed one year, then the commission cannot be higher than 0.5% of the value of the repaid loan.
It is also worth knowing that the commission for early loan repayment cannot be greater than the amount of interest that the consumer would be obliged to pay in the period between the loan repayment before the deadline and the agreed termination date. At the same time, the fee may not exceed the lender's direct costs related to the early repayment of the loan.
"The lender is obliged to settle the loan with the consumer within 14 days from the date of early repayment of the loan in full."
Formal conditions for early repayment of the loan
As a rule, early repayment of the loan (its part or all) reduces the amount of the remaining installments and shortens / terminates the repayment period of the remaining debt. Banks, however, may introduce formal rules for taking advantage of this option, and most often it is the submission of an application with information about the intention to early repay the liability at least 3 days before it is made. Therefore, before making a payment, it is worth getting acquainted with the requirements of the financial institution in which the loan was taken.