What is special repayment right?
In order to repay a loan, the borrowers contractually repay monthly installments to the lender. Special repayment is made if, in addition to these agreed installments, further payments are made with the aim of repaying the loan before the contractual date. No law obliges to a right to special repayment in whatever form of installment. It has to be agreed on a loan when the contract is concluded, otherwise you usually don’t have it.
Where does special repayment law occur?
It is therefore clear that the right to make additional repayments must appear in the loan agreement. There it is to be determined how the installments should be in amount and frequency, which may be made as a separate repayment. Most of the time, a percentage of the net loan amount, i.e. the chosen loan amount, and especially not the remaining debt, is specified in the loan agreement. Such agreements exist for all types of loans. The right to special repayments for building loans is particularly common.
What else is there to say about special repayment law?
Banks already take a higher interest rate for the right to special repayment. In doing so, they offset their losses in interest income in the event of early repayment. Some require compensation payment, others a prepayment penalty. This is legally limited to half a percent to one percent of the remaining debt.
The advantages are:
- Lower total interest costs thanks to shorter loan terms
- Repeated additional repayments reduce the total credit costs
- Special repayment corresponds to solid flexibility in private financial planning
The disadvantages are:
- The lender may legally take a prepayment penalty and thereby compensate for loss of interest
- The lender is entitled to raise debit interest over the entire term of the loan
Alternatives to the right to special repayment are increasing the repayment rate, agreeing a variable loan, transferring equity to financing in another way, for example with follow-up financing or rescheduling.