Archive May 20, 2020

Early debt repayment: a good option for indebted civil servants? – Credit Consolidation

An early repayment is a payment to settle part or all of a debt before a due date. As soon as a civil servant borrower has several loans, this option can be considered. However, is prepayment beneficial to public service borrowers?

 

Early repayment: the principle

debt repayment

Early repayment allows a borrower to be able to repay part or all of a debt before the scheduled date. This repayment becomes total if the borrower can and decides to settle the loan completely, or it will be partial if it concerns only a part of the sums remaining due.

However, early repayment may generate costs on the part of the creditor called PRA (Early Redemption Penalty) in order to make up for the shortfall in interest which will not be collected, fixed in advance in the consumer loan contract and supervised by the law according to article L311-29 of the consumer code.

However, the lender can refuse an early repayment if it is less than a certain amount, fixed by decree beforehand and cannot exceed 3 times the amount of the due date to come.

Regarding mortgages, repayment penalties are also present. The conditions are set out in articles of law L312-21 and R312-2. These penalties cannot exceed 6 months of interest from the sums reimbursed at the loan rate, and cannot exceed 3% of the principal remaining due.

It is worth remembering that these sums are not imposed by the creditor but by the legislator, it is therefore quite possible to negotiate his prepayment costs with his banker when taking out the loan.

 

Advance repayment: the benefits for civil servants

debt repayment

The benefits to an official borrower to make prepayments are many.

Following the sale of property, consolidation of credit or a home money, the borrower can decide to make an advance payment to reduce the repayment term and ultimately pay less interest.

However, for early repayment on a mortgage, the borrower official must first perform a simulation to deduce whether this operation will be profitable.

If this repayment is partial, the creditor can make this operation free if it is included in the loan contract, enough to save a significant sum to a borrower from the public service.

Therefore, the prepayment of credit can be beneficial for any borrower wishing to optimize its financing, including indebted civil servants. However, caution should be exercised, since this option generates costs.