Many loans with a fixed interest agreement are concluded over a longer period of time. However, if a borrower’s financial situation or general interest rate changes change, such a loan can quickly become completely unprofitable. However, consumers only have the option to terminate an interest-linked loan with a legally stipulated period after ten years. In the event of early termination, the banks can charge fees to offset their losses due to the loss of interest income. This fee is commonly referred to as a prepayment fee or prepayment fee. In the case of non-fixed-interest loans, this fee can only be paid for a period of three months, unless there is no other possibility of termination. There are many reasons for taking out another loan to repay an old loan, one of which mostly lies in lower interest rates.
The loan rescheduling
Another motive for rescheduling can be the amount of the monthly installments due, which is no longer appropriate due to changing economic conditions. On the other hand, an existing overdraft facility can be paid off with a new loan. The interest for such a overdraft facility is regularly far above that of an installment loan. The prepayment fee is calculated by banks and financial institutions using different methods, which have repeatedly caused legal disputes in the past. A distinction is made between the active-active comparison and the active-passive comparison. In addition to the prepayment fee, the banks can also charge a processing fee if the loan is to be paid off prematurely.
Borrower’s payment due
This fee is only due after the borrower has given notice. The prepayment fee, for example, is collected regularly when a mortgage loan is repaid, because normal installment loans for consumers can be terminated with a statutory period of three months. This means that the prepayment fee can only be paid for this time. If a loan is now to be replaced by a new one, not only the nominal interest rate must be taken into account, but all these fees must be added to find out how favorable the new loan conditions really are. After all, the costs incurred must not be higher than the previously paid liabilities. Only the effective annual interest rate provides a precise overview of all costs; it includes the nominal interest rate, all processing fees, insurance and other fees.
The old loan should only be canceled after a new loan has been approved. Debt restructuring is particularly worthwhile if the old contract is still very long and the loan amount is high. If the second loan is taken out from the same bank as the first, fees must not be charged twice. The effectively expected interest for a new loan must be significantly lower than that of the loan to be repaid so that a debt rescheduling actually pays off. While prepayment for a long-term mortgage loan always plays a role, normal installment loans for consumers are not affected.