Personal loans: how to pay them off in advance.

Although early closures of personal loans involve only a minimum percentage of borrowers, it is good to know how to move if you want to pay off your debt early.

If you are in possession of liquidity, it is advisable to pay off the current loans to save on the interest due.

First of all, a clarification: the early closure of the loan is not only a possibility, but it is a right of the consumer that must be guaranteed by all the financing companies, under penalty of being reported to the competent bodies.

How does the early repayment of a personal loan work?

How does the early repayment of a personal loan work?

After making the request, the customer is required to return the remaining loan, the interest accrued up to the request for extinction (not the interest of the entire loan period) and any charges. It should be taken into consideration that the institution providing the loan can request up to 1% penalty on the remaining capital.

The amount of 1% is the ceiling established by law which cannot be exceeded in any way. The penalty clause must necessarily be present in the contract signed by the client and cannot be applied in the case of residual debts of less than 10,000 USD.

If the amount is higher than 10,000 USD instead, the bank or lender can request a penalty up to 1% if the contract expires over a year, while the limit is 0.5% if the contract has a deadline of less than 12 months. The request for a penalty is not applied by all credit institutions; it would be a good rule, when signing the contract, to verify the presence of this clause.

Let’s summarize what we said in a table:

Residual debt

Penalty (%)

<10,000 USD


> 10,000 USD (less than 12 months)

Up to 0.5%

> 10,000 USD (more than 12 months)

Up to 1%

It would also be good to check that there are no clauses that prohibit early closure. This behavior is expressly prohibited by law, but any legal dispute may take time to enforce consumer law.

How to calculate the debt to pay off?

How to calculate the debt to pay off?

The bank (or the lender) at the signing of the loan should provide a prospectus indicating the situation of the loan for the payment of each installment envisaged.

The last installment paid must be considered and the value of the capital quotas verified, leaving aside the value of the interests. The percentage of penalty provided by the contract must be applied to the amount If this calculation is not clear, or if you do not have the installment schedule, you can request assistance from the bank that issued the loan, which is required to disclose the remaining amount of the debt.

To pay off the loan, it is advisable to communicate the intention to the credit institution by registered letter or to go personally to the branch that provided the loan to discuss the methods of extinction in person.

Usually from the request to the implementation it can take several days (in some cases even weeks), after which the customer will be notified of both the remaining quota to be paid and the methods for extinction (normally by bank transfer).

If the loan is repaid by a fifth, it is a good idea to inform the employer of the intention to interrupt the loan, so as to interrupt the payment of the loan amounts to the bank.