Early repayment: what is it?
If you have taken out consumer credit, you must pay it back over a pre-defined period by paying monthly payments to the bank or credit institution that loaned you money.
However, your situation and your may change in the course of your loan, so you may be able to repay your personal loan sooner than expected. In this case, you can opt for early loan repayment. This is simply to repay all or part of the amount borrowed before the originally scheduled date.
Advantages of prepayment
Early repayment of a loan is advantageous for your Miss Marples. This device saves you from paying interest over time and allows you to reduce or even cancel your remaining monthly payments. Your monthly budget will be more flexible.
Two types of prepayment
Depending on your situation, if you wish to make an early repayment, two solutions are available to you:
- Total repayment : you repay the entire loan in one month. Thus, your contract ends and you are no longer engaged with the lender;
- Partial repayment : you repay part of the outstanding capital. As a result, your remaining monthly payments may be reduced, all the same as the term of the loan.
Which article regulates the prepayment of the personal loan?
As with all consumer loans, the prepayment of the personal loan is regulated by article L311-29 of the French Consumer Code. The latter specifies that the applicant is always in the possibility, if he wishes and can, to prepay all or part of the credit he has contracted with a financial institution.
Note however that according to Article D311-10, the lender is entitled to refuse a partial refund if the latter is less than or equal to three times the amount of the future due. Thus, for an early repayment of the personal loan to be authorized, the minimum amount must be indicated in the credit agreement.
Early repayment of loan: are there any penalties?
The early repayment of credit may be authorized by law, it is not interesting for lending institutions (banks, credit organizations …), because it represents a shortfall. As a result, most financial institutions charge fees , known as Early Redemption Penalties (AOPs) or Early Redemption Charges (ARIs), to customers who apply for prepayment.
If the outstanding capital is less than € 10,000, your lending institution may not charge you for your prepayment.
However, since 1 May 2011, if the customer exceeds the threshold of 10 000 € prepayment for a period of 12 months, the lender is entitled to demand prepayment penalties. Note however that these can not be claimed if the reimbursement comes from the execution of an insurance contract that guarantees the repayment of the loan.
No compensation can be imposed on you in the case of a revolving credit.
The amount of the prepayment fees
Rest assured: Banks and credit organizations do not have carte blanche, and prepayment fees are regulated by law. Thus, these penalties have for maximum amount:
- 0.5% of the remaining amount if the period between the prepayment and the end of the loan agreement is less than or equal to one year;
- 1% of the remaining amount if the period between the repayment and the end of the contract is more than one year.
These penalties are limited to the amount of interest that the customer would have paid if he had completed the term of his contract.
How to make an early repayment of a personal loan?
If you wish to make an early repayment of your personal loan, you must first contact your lending organization by registered letter with acknowledgment of receipt. This must include the date you want the count to be done. Contact with his financial advisor will also set the conditions for this early repayment.
This must be done at least one month before the date set for the early repayment and must necessarily correspond to the monthly maturity of the loan in order to avoid the payment of interim interest.