Procedures for early repayment of a debt

10/06/2021

The reasons for considering the early repayment of a bank debt are obvious: you’ll give your finances some breathing space and will often save on interest. It’s a simple procedure which banks should make easy for you.

If you want to partially settle your debt, you’ll need to weigh up two possible options: pay the same instalment and shorten the repayment period, or pay a smaller instalment and keep the original repayment period. You won’t always have that choice, since the agreement may establish which of the options will apply.

If it’s a consumer loan, remember that you have the right to withdraw from the agreement if you notify the bank within 14 days of signing. And, of course, in the case of credit linked to the purchase of a goor or service, if you return the purchased good or decide to discontinue the service during the first two weeks, the agreement will be cancelled at no cost. However, you will have to pay any interest accrued up to cancellation. If you decide to fully or partially repay a loan after the cooling-off period, your agreement may stipulate that you have to pay a cancelltion feeAbre en ventana nueva.

For mortgage loans, it’s important to check the date on which the loan was arranged, because the legislation governing the early repayment of such loans, whether full or partial, changed on 16 June 2019, with the entry into force of Law 5/2019Abre en ventana nueva on real estate credit agreements:

• If your loan was arranged prior to that,

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  to find out what fees the bank can charge you. You may be charged compensation for withdrawal or interest-rate risk.
• If the loan was arranged, subrogated or novated after 16 June 2019, they’ll be able to charge you a single “compensation or fee”, as detailed here, up to the limit of the financial loss incurred by the bank, i.e. the estimated interest that the bank will not earn if the loan is repaid early. The legislation establishes how this financial loss is calculated.

If you decide to pay off your mortgage loan, you’ll have to complete the formalities stipulated in the loan agreement:

• You may be required to provide notice of your intention to repay the loan (up to one month under the new legislation). Always make sure there is a record of this notice.
• Your bank is obliged to provide you with all the information that you need to consider your options within three days and in a durable format.
• If there is an insurance contract attached to the loan with the lender as beneficiary, state whether you wish to terminate or maintain it (this also applies to personal and consumer loans).
• Depending on the reason for cancellation, you may be asked to perform an urgent transfer order.
• In the case of mortgage loans, if you pay off the loan in full, you should also remove the discharged mortgage fron the Land Registry.