Winning with early repayment of loans

It often happens with long-term loans: after a while, you get extra money that you decide to advance to partially or fully pay the debt you have in the form of a loan. Doing this is not only possible, but also saves money on interest.

Winning with early repayment of loans

How to cancel the loan early

In Spain, bank and non-bank loans include capital and interest, which are calculated based on the repayment period agreed with the entity.

For the return of the money, the so-called French system is used, which works as follows:

  • The fee is usually always the same, from the first to the last
  • During the first years of the loan, more money is paid in interest than in principal (within the same installment), and this proportion is invested over time

This means that the sooner the loan is amortized, the more money is saved in interest, because there is less time to accrue it.

At any time in the life of the personal loan , a part of the money or even all of what is owed to the entity (including interest to date) can be amortized. By paying once, you save those interests that would come into play from that moment until the end of the initial agreed term. The savings can be remarkable.

Does prepayment of the loan have any cost?

It depends. There are entities that offer this possibility at no additional cost to the client, especially online financial entities when it comes to online loans , and in the same way, it can be small or moderate amounts such as larger amounts.

There are also entities that implement a policy of including a small early cancellation cost, which will be specified in the contract or in the terms and conditions of the loan in a transparent manner. In these cases, the price of the advance payment is usually expressed in terms of a percentage of the principal pending payment.

The entities that carry out this charge intend to recover a part of the capital that will not be paid as future interest. They are not usually very high commissions, and it almost always pays to pay the loan early, even if you have to pay this price.

In addition, getting out of debt is always good news for any domestic economy, since the pressure on income is reduced and personal finances are protected against unforeseen events that make it difficult to pay those monthly installments.

Winning with early repayment of loans : 4.2 / 5 of 23 votes
Roger molins Jerome P Allison ( LinkedIn )
I am a freelance writer and consultant for companies and individuals, with a particular emphasis on fintech, technology, startups and online marketing. More information ...