Early repayment of cash loans is a goal for many borrowers. Freeing yourself from your monthly commitment certainly improves your well-being and gives you some freedom.
The moment we get extra money or our income increases and we have extra cash, the question arises. Is it worth paying off the cash loan in advance or overpaying the loan installments? Is this solution profitable from a financial point of view?
Cash loan overpayment
We can speak about an overpayment of a loan when we pay more (once or twice a month) to the technical account of the loan than it would appear in the repayment schedule. By overpaying capital, we reduce interest on this capital.
However, before we decide to overpay the loan, let’s check the provisions in the loan agreement. It may turn out that the bank foresaw this situation and prepared a completely different account number for overpayments.
By signing the consumer loan agreement, we commit ourselves to repayment, which takes place in principal and interest installments of the value specified in the repayment schedule. A consumer loan is considered to be such if its amount does not exceed USD 255 550, both in Polish and other currency, converted into the equivalent of this amount.
The installments of such a loan contain a part of the capital, which means repayment of the value of the proper debt, as well as an interesting part – the bank’s remuneration for the loan service. According to the Consumer Credit Act of 12 May 2011, the customer has the right to make an earlier payment at any time during the term of the loan agreement.
Cash loan – early repayment
When planning early repayment of a loan, it is worth calculating whether it will be profitable. Especially when there are few installments to be paid, the costs of early repayment (commission) may exceed the remaining amount to be repaid. In this situation, it is worth asking for the opinion of a financial expert.
It will help to analyze our contract and can prepare cost calculations for early repayment. In the loan agreement, the bank regulates the obligations of both parties, including all fees – in the tables of fees and commissions. Their amount and mode are governed by consumer credit regulations.
It is worth noting that in the event of early repayment of a consumer loan, the creditor should reduce proportionally and refund all cash loan costs. This is a common interpretation of the provisions of the Consumer Credit Act of the Financial Ombudsman and the President of the Office of Competition and Consumer Protection.
This interpretation was confirmed in September 2019 by the EU Court of Justice. He said that when we repay the loan earlier, the bank must provide us with a refund of interest on the overpaid/repaid part. In addition, he must give away all costs, e.g. commissions, which should be reduced proportionally to the duration of the real cash loan.