A loan with a special repayment is not a separate loan type, but rather a valuable part of the contract for most types of loan. This has developed over time as the resentment of bank customers increased because they were only allowed to repay loans prematurely with high fee premiums. In addition to the earlier repayment option for loans, the use of the special repayment is also a very good option, especially for customers with a non-outstanding credit rating, to set positive characteristics.
Special repayment and installment break: two different sides of the same coin
In various sensational judgments, the fees previously charged by banks for early loan repayment were criticized as too high. Maximum limits have been introduced for the so-called prepayment fees. In the course of intense competition, these fee items were mostly completely eliminated. However, there is no industry-wide, uniform banking regulation for loans with special repayments. If you apply for a loan, you should be careful how many special repayments are possible per year and what amount they are. For example, if only one special repayment per calendar year is permitted with a certain percentage of the remaining balance, the borrower can repay or repay a lion’s share of the loan in late December and early January.
An advantage of the increasing flexibility of loans is also the suspension with one or two monthly installments. The banks sometimes refer to this as a “rate break”, sometimes as an interruption in repayment. However, the borrower should be careful how the postponement of the repayments will affect his future credit rating. The private customer loan with a fixed term cannot be canceled by the bank if there are no arrears. However, it is rated as a sign of a declining credit rating if a customer wants to suspend monthly payments more often or want to achieve lower monthly rates by extending the term.
Therefore, the borrower should always remember that a special repayment is a good credit signal, a postponement of the repayment can be viewed critically. The loan with special repayment, in which this is actually carried out, is a strong credit signal.
Popular tool, especially in phases of rate cuts
The reason that special repayment loans are the norm today is because of the enormous fluctuations in interest rates in the past. While double-digit interest rates are required even for consumer loans in a boom phase, these have now dropped to less than half. Since the banks do not exactly refinance every loan with the same term, the bank has a cost advantage. Customers want to use it whenever possible.
For this reason, with every major interest rate cut, there is a massive rush of customers for new loans with the purpose of debt restructuring. Often, a further interest rate reduction can be brought out for customers with a not so advantageous credit rating. Since they have paid back on time for a few months, the remaining loan amount is lower. In addition, in most cases they have continued their professional activity with the same employer, so that the risk characteristic of an employment with the same employer being too short is eliminated.