All credit brokers are often faced with this question from their clients: “Can I pay off my credit in advance?” In fact, it can happen that a borrower wishes to repay his credit in advance, that is to say in advance, in other words before the term of the credit contract.
Events in life can encourage the repayment of a loan in advance: you immediately think of an inheritance, but that is not the only reason. A change of job, a new cohabitation, the gain of a sum of money, life insurance which expires, capital gains linked to investments, etc. etc … are all happy and favorable events which can encourage the borrower to repay his loan in advance.
Question of principle: can you repay your credit in advance?
In other words, can the borrower repay his personal loan or mortgage before the end of his contract? The answer to this question is simple. The law allows any borrower to repay any type of credit at any time during the life of the contract.
Question of finance: is it always interesting to repay your loan in advance?
It is not necessarily attractive for the borrower to repay his loan in advance. We will understand better on the basis of a concrete example: imagine a candidate borrower who subscribes self financing for an amount of $ 35,000 to buy a new luxury vehicle. To finance such a purchase, in the case of a new vehicle, the interest rate will change in a range going from 3 to 5%. If the person concerned inherits a large sum, it may be more interesting to invest this money in an investment which can in the long term bring more than an interest rate of 3 to 5%. Real estate for example brings in an average of 10% per year. Likewise, certain corporate bonds bear interest of almost 7 to 8%.
The interest rate on the loan will therefore be a determining factor and the solution to this question will be a question of personal analysis.
Personal loan prepayment
The borrower has the right, at any time, to repay in whole or in part the balance of the remaining capital due in advance. In this case, he is entitled to a reduction in the total cost of the credit by an amount equal to the interest and costs due for the remaining term of the contract. He advises the lender of his intention by registered letter at least ten days before repayment. In practice, most brokers are satisfied with a simple telephone notification.
If the period between the early repayment and the agreed contract end date exceeds one year, the allowance amounts to 1% of the main amount being repaid early. If the period does not exceed one year, the compensation amounts to 0.5% of the capital amount subject to early repayment.
The lender communicates to the borrower the amount of the indemnity claimed by mail. This communication includes in particular the calculation of the compensation. The indemnity may in no case exceed the amount of interest that the borrower would have paid during the period between the early repayment and the date of the end of the agreed credit agreement.
The reimbursement made will be charged in priority to the amounts due and the re-employment allowance, and the balance will be charged to the balance remaining due on the day of payment. No re-employment compensation is due if, pursuant to article 85, 86, 87, 91 or 92 of the law of 12 June 1991, the borrower’s obligations are reduced to the cash price or the amount borrowed, or in the case of reimbursement in execution of an insurance contract intended conventionally to guarantee the reimbursement of the credit.
Prepayment of mortgage credit
Prepayment of mortgage credit is also possible at any time during the life of the mortgage contract.
In this case, the borrower will owe a reuse capital allowance which will be equivalent to 3 months. The amount of interest will correspond to the amount taken from the amortization table corresponding to the month during which the reimbursement will have taken place.