Effects of early repayment – Consumer credit

Consumer borrower

The consumer-borrower, in accordance with current legal regulations, can always repay part or all of the loan before the payment deadlines specified in the contract. The creditor can never deprive the consumer of this right.

However, there were doubts – what are the effects (in terms of loan costs or interest) of early repayment? The lenders know their own, but it is the Financial Ombudsman and the Office of Competition and Consumer Protection recently issued a joint interpretation specifying in detail how early repayment should be accounted for. I invite you to read!

Credit Agreement

As follows directly from the Consumer Credit Act, if the entire loan is repaid before the deadline specified in the contract, the total cost of the loan is reduced by those costs that relate to the period by which the duration of the contract has been shortened, even if the consumer incurred them before that repayment. This regulation refers directly to the definition of the total cost of credit , which includes all costs that the consumer is obliged to incur in connection with the credit agreement, in particular:

(a) interest, fees, commissions, taxes and margins, if known to the creditor, and

b) costs of additional services, where they are necessary to obtain a loan, with the exception of the costs of notary fees incurred by the consumer.

In practice, however, interpretation doubts have arisen whether in the event of early repayment the cost reduction also includes various initial costs (preparation fees, administrative fees, initial fees, etc.) that do not constitute interest or other remuneration for the lender. Many lenders believe that any costs charged for one-off activities or services will not be reduced if the loan is repaid ahead of schedule. According to the President of UOKiK and RF, such costs, as a part of the “total loan costs”, are also reduced if the loan is repaid ahead of schedule.

According to the thesis presented in the joint position of both authorities, “Art. 49 paragraph 1 of the Act should be understood as meaning that in the event of early repayment of a consumer loan, all possible costs of such a loan will be reduced, irrespective of their nature and regardless of when these costs were actually borne by the borrower, with the exception that the reduction is of a proportional , i.e. it refers to the period from the date of actual repayment of the loan to the date of final repayment specified in the contract. “