Anyone subscribing to a payday loan is entitled to make partial or total repayment of their credit before the end of the contract. This is called prepayment. To clarify things and avoid any dispute between lender and borrower, this operation is strictly governed by the Consumer Code. Here’s everything you need to know about prepaying a payday loan.
Prepayment of a payday loan: what, why, how?
An unforeseen return of money (gift, inheritance, gain …), this is undoubtedly the one and only reason that can motivate a borrower to make an early repayment of his payday loan. Early repayment can be partial or total. In the first case, the remaining capital due is reimbursed in full. In the second, only part of the capital is reimbursed in respect of your credit. Interest and insurance (if applicable) will then be recalculated on the basis of the new capital. But we will see it later: whether partial or total, early repayment is not without consequences. It is a good idea for the borrower to weigh the pros and cons carefully.
To proceed with this transaction, the borrower must first inform his bank, which cannot refuse it. Besides, the borrower does not have to justify himself either. Ideally, the latter will plan to make its early repayment at the same time as the payment of the monthly due date. In this way, it will escape the interim interests.
Repay payday loan in advance: potential indemnity payable
Borrowers wishing to repay their payday loan early may be subject to penalties. These take the form of compensatory compensation. The rate payable by the bank may be equal to a maximum of:
- 1% of the loan amount if the period between the date of early repayment and the date of termination of the contract is more than one year;
- 0.5% of the loan amount if this period is less than or equal to one year.
In any case, the amount of the indemnity will always be capped at the total amount of interest that the borrower would have had to pay to the bank if he had gone until the end of his credit contract.
But early repayment of payday loan and indemnity are not inseparable! No compensation can be claimed by the bank:
- if the reimbursement results from the execution of an insurance contract guaranteeing the reimbursement of the credit;
- if the repayment occurs when the loan rate for the period is not fixed;
- if the borrower repays 10,000 dollars or less per period of one year.
Early repayment of a mortgage: same regulation?
In addition to the APR, so-called additional costs. In banking jargon, they are called penalties. These only intervene during credit. In the end, they potentially increase the cost of the payday loan. We distinguish:
- penalties for late payment;
- prepayment penalties.
Again, the amount differs depending on the credit institution. The borrower can refer to the contract to read it. In order to avoid the penalties relating to late payment, it is better to opt for the repayment period most suited to your financial situation. Because this duration will directly define the amount of the monthly payments. The shorter it is, the higher the monthly payments, and vice versa.
Some lenders do not apply a penalty for early repayment. With us, the borrower can make a prepayment free of charge, regardless of the amount borrowed! Thus, if his financial situation changes (winning games, donation, inheritance …), he can settle his consumer credit with confidence.