What is special repayment?
You repay a loan in monthly installments. The so-called repayment is agreed between the lender and the borrower when the contract is concluded, for the entire term. All additional payments that occur outside of these contractual agreements and serve the early repayment of the loan are referred to as special repayments.
Weigh the possibility of special repayment
If you can count on additional capital from an inheritance, bonus payments, royalties or a salary increase when you take out the loan, a loan with a special repayment is recommended.
The option of special repayment is already standard in many contracts, but not in others. When choosing the lender, you should definitely pay attention to the possibility of unscheduled repayment or insist on a special repayment when taking out the loan.
It is usually difficult to adjust the contract afterwards to the option of special repayment. You can see which lenders offer a special repayment in our loan comparison.
Fees and minimum sums
Not every bank offers a free special repayment. Some providers charge a penalty for early repayment of the loan. However, the so-called prepayment penalty may not exceed 1.0% of the remaining debt. For this purpose special tilts are possible at any time.
Other lenders, on the other hand, offer a free special repayment, but limit this to a maximum amount. This can be between 4.0% and 5.0% of the original loan amount.
For you as a borrower, a special repayment always makes sense, since with each unscheduled payment you repay the loan faster and lower the interest accrued. Credit institutions, on the other hand, miss out on profits because you earn from the interest income from lending. For this reason, if the loan is redeemed early, the penalty fee is charged or the special repayment is limited to a maximum amount.
Alternatives to special repayment
In principle, a special repayment is not part of the credit costs. This means that it does not affect your monthly rate or how expensive your loan will be. As a rule of thumb for installment loans, you should always keep the option of special repayment contractually – regardless of whether you use the option or not. This does not apply to the special repayment of real estate loans, other guidelines apply here.
Saving as an alternative
If you have money over, the question arises: “Special repayment sensible or save the money?”. The question can be answered very easily: if the savings interest is higher than the loan interest, then it is worth investing the money. Experience has shown that the savings interest for overnight money or fixed deposits is never higher than loan interest. Conversely, this means that a special repayment makes more sense than saving.
Only high-risk investments such as stocks or funds promise high returns and would be suitable as an alternative to special repayments. It is crucial to compare the cost of the loan and the highest possible return on the investment in order to see what makes more sense. Critically question the calculation and it is best to get advice from your bank advisor.
Debt as an alternative
Special repayments are particularly useful for expensive loans: they shorten the term considerably, lower your monthly debit, and you are debt-free more quickly. But you cannot always afford a special repayment. As an alternative, debt restructuring is recommended. If the current installment loan interest is significantly below the contract interest rate, the termination of the existing loan and the taking out of a new and cheaper loan is more advantageous. You can find out what you need to consider in our article on debt rescheduling.