Taking a loan from a bank is a very common obligation. Many people take installment shopping loans or cash loans for the amount of several or several thousand dollars. However, the mortgage is still very popular, its contract is concluded for up to 20 years. This is a very long period during which a lot can change. Among other things, interest rates that have a direct impact on the cost of credit, or the amount of our earnings. Unfortunately, there were already many cases when people who bought real estate on credit had to sell them after a few years in order to return the rest of the borrowed amount to the bank and not have debt, because they could not afford regular loan installments according to the provisions the original contract. That is why many people assume that as long as they have a good job and high earnings, they can overpay the loan. But is it worth doing?

What is loan overpayment?

credit payment

In many banks, you can use cash deposit machines that only accept cash payments, but do not support coins. This means that if someone wants to pay an installment of e.g. PLN 295, they must pay PLN 300. This creates an overpayment of PLN 5. You can also round up bank transfers if you pay by installments in this way. But it is not mandatory! You may as well pay the installments in the amount specified in the schedule. However, the Consumer Credit Act also allows repayment of the entire loan before the due date.

And how does it work in the case of large liabilities, like mortgages? The Mortgage Act, amended in July 2017, allows customers to make overpayments and pay back the entire loan amount earlier. For example, if in the month of March we pay the amount corresponding to two installments, and during the remaining months we pay the equivalent of one installment, then in the year we will pay 13 instead of 12 installments. But beware! It is wrong to reason that since we paid one more installment in a month, we can take a month off! It doesn’t work that way. The overpayment is recorded on the account and deducted from the remaining amount to be repaid. Most often it shortens the loan repayment period, but it does not give us the right to take a vacation, for example.

Does overpayment pay off?

Does overpayment pay off?

It is worth looking at the loan agreement. It is true that after introducing changes to the Act, banks have a limited possibility of adding commissions, but for loans with a variable interest rate, some of them introduced the so-called compensation fee. Most often, if we overpay the loan for the first 3 years from the date of the contract, we will be charged additional fees. As much as 99.5% of mortgage loans in Poland have a variable interest rate. The remaining percentage of loans are loans with a fixed interest rate, where a commission is charged with earlier repayment. Therefore, contrary to appearances, this is not always profitable.

But the most important advantage of overpaying your loan, even if you don’t do it regularly, is to reduce your loan duration. Even if we have a loan agreement for 15 years and we pay the “13” installment only once a year, we will shorten the loan repayment time by 15 months!