Prepayment

Prepayment is repayment of the loan amount earlier than the date specified in the loan agreement.

Prepayment is the borrower legal right. Accordingly, during the term, you have the option to prepay the loan or loan amount in full or in part. This can be done in the manner stipulated in the credit agreement or the general terms and conditions.

Prepayment can be partial, when the borrower pays back only a part of the total of the total principal amount before maturity. The entire debt can also be prepaid. In this case, it is an early repayment. In case of early repayment, the loan agreement is closed.

In general, the intention to prepay must be announced in writing to the bank in advance.

The credit provider costs in connection with prepayment. This can be the case, for example, in connection with the performance of administrative and contract amendment tasks. In addition to these, the credit provider also loses part of its revenue, since the borrower pays him interests for a shorter period of time or for a smaller amount than originally contracted. Because of all this, banks usually charge a pre-fixed fee for prepayment. 

The prepayment fee varies from bank to bank. It may also happen that, under certain conditions, prepayment is free of charge. In most cases, however, the prepayment fee is 0.5-1% of the prepaid amount, but a higher rate may also be applied.

The borrower can decide whether prepayment is worth it by considering whether he will save more on interest than the prepayment costs him. After prepayment, the remaining principal is smaller, so the debtor will pay less interests for the remaining term. If this amount is greater than the prepayment expense, it may be worth prepaying.