Faced with an unexpected cash flow, many borrowers are considering the early repayment of all or part of their loans. Does this transaction correspond to a purchase of credits?
The early repayment of one or more credits is a possibility in case of sale of the financed property, purchase of credits or when the borrower has a receipt of money. However, prepayment penalties (ARIs) may apply. Explanations.
When to consider repaying your loans in advance?
Early repayment of one or more credits should not be considered at any time. Indeed, in the following cases, this operation is not always financially interesting:
- Your contract provides for prepayment penalties;
- Your contract is nearing completion and so there is little interest to pay back;
- Your contract was underwritten at an attractive rate and you had already played the delegation of insurance.
It should be noted that many contracts exclude the ability to pay off prematurely without penalty when the borrower establishes a buy back credit.
To sell your loans prematurely: the procedure to follow
To obtain an early repayment, you must refer to the conditions of your credit agreement to check whether or not it provides for penalties and under which conditions the refund is allowed. Then you will have to inform the bank of your decision by providing a delay of at least one month before the date on which you wish to pay your credits. Remember that the bank can not refuse your request if the amount refunded is at least 10% of the loan.
Even if your adviser dissuades you by highlighting the cost of such an operation, ask him to make a simulation online which will allow you to comfort you or not in your decision. To do this, you will need to enter: the initial amount borrowed, the date the credit was set up, the initial term, the loan rate and the desired early repayment date.
Ideally, it is advisable to match the payment of the early repayment with the payment of the monthly installment in order to avoid having to pay interim interest.
Evaluate prepayment penalties
As part of the early repayment of a loan, the amount of penalties is regulated by law. It corresponds to the lower of these two amounts:
- 6 months of interest on the repaid capital;
- 3% of the outstanding capital at the date of repayment.
On the other hand, no charge may be applied when the prepayment concerns an overdraft authorized or a revolving credit.
Thus, to pay off prematurely does not necessarily correspond to a credit buyback operation. Indeed, a borrower can very well decide to repay his mortgage early without resorting to this solution. Conversely, it is possible to make an early repayment in the context of a repurchase of credit if several loans had been subscribed. In either case, it is important to properly assess the costs associated with it.
Be aware that it is possible to negotiate early redemption fees at two points: before the contract is signed by the competition or after the signature, when you want to initiate the early repayment of your credit.