Early repayment of cash loan. Find out if it pays off.
When signing the loan agreement and taking out a cash loan, the customer and the bank agree to repay the liability. They set the deadline for payment of principal and interest installments in accordance with the repayment schedule approved by both parties.
At the same time, however, nothing prevents you from making an early repayment of your cash loan if it turns out that the client has additional funds that he can spend on it. The only question is, will such early repayment pay off to the borrower?
Cash loan repayment date
The loan repayment agreement must contain a mandatory deadline for repayment – final and deadline. Similarly, deadlines for paying principal and interest installments on a cash loan must be set.
In many cases, the borrower can negotiate a long loan repayment period with the bank, especially if the loan amount is high, as well as payment dates.
The loan repayment date is a fixed one, it cannot be exceeded without exposing you to penalty interest on the loan. However, the customer has the option of settling cash loans taken out ahead of time.
Borrower’s rights under the Act
The Act of May 12, 2011, on consumer credit, together with amendments to regulations, gives borrowers the right to repay the loan early. A cash loan will be considered a consumer loan if it is granted to the consumer in an amount not exceeding USD 255 550. This is what Art. 3 of the said Act:
“Art.3.1 will be established. A consumer loan agreement is understood as a loan agreement in the amount not exceeding USD 255 550 or the equivalent of this amount in a currency other than the Polish currency, which the creditor grants or promises to grant to the consumer in the scope of its activity. “
Chapter 4 of the Consumer Credit Act is dedicated to regulating the provisions regarding the repayment of a credit obligation. Article 48 provides that the consumer has the right to repay all or part of the loan before the date specified in the contract, at any time. Furthermore, the creditor may not make the early repayment conditional upon the consumer being informed of such intention.
It is also worth pointing to art. 50 regarding the commission which the lender may charge to the borrower who repays the loan earlier. The loan agreement may be stipulated that a commission will be charged for repayment of the loan before the deadline, but only if the repayment falls within the period in which the loan interest rate remains constant and the amount of the loan repaid in a period of twelve consecutive months is higher than 3 times average salary in the enterprise sector. This value is determined by the President of the Central Statistical Office in the Official Journal of the Republic of Poland “Monitor Polski”.
The commission charged for repayment of the loan before the deadline may not exceed:
- 1 percent part of the loan to be repaid, provided that the period between the loan repayment date and the loan repayment date exceeds one year;
- 0.5% part of the loan to be repaid, provided that the period between the loan repayment date and the loan repayment date does not exceed one year;
- the amount of interest that the consumer would be required to pay in the period between the repayment of the loan before the deadline and the agreed contract completion date;
- direct costs of the lender related to the loan repayment.
Also under the provisions of the Consumer Credit Act, it should be said that in the event of repayment of the entire loan early, its total cost must be reduced by the costs related to the period by which the duration of the contract has been shortened. It does not matter if the consumer incurred them before this repayment.
Is it worth paying off the loan early?
We already know that repayment of consumer credit, and therefore most cash loans, before the date specified in the credit agreement is possible at any time and has many advantages.
The bank must reimburse part of the loan costs, and the customer can get rid of his obligations faster. Thanks to this, he builds a good credit history at Credit Checker and does not burden his creditworthiness, which will make it easier for him to take another loan.
Always before making a decision about the early repayment of a cash loan, you need to calculate whether the commission charged in this case by the bank will not be higher than the financial benefits resulting from this repayment.