There is an additional charge which, when a credit is contracted and it is decided to repay it completely before term. These fees are a deterrent, especially for those who change credit at the option of competing institutions. We give you below information about these penalties.
Early Redemption Payments ( ARAs ), commonly referred to as Early Redemption Penalties ( AIPs ), are charges that are applied in the event of an early repayment of a home loan. Generally, these fees are stated in the loan agreement.
Note that these penalties are capped as stipulated in the Consumer Code in Articles L312-21 and R312-2.
In fact, these indemnities can not exceed 3% of the capital remaining due before the prepayment. Moreover, they can not exceed six months of interest of the sums reimbursed at the average loan rate.
For example, if the outstanding principal of your loan is 10 000 euros, the IRA, or PRA will be: 10 000 € × 3% = 300 €.
Like any measure, there are exceptions to the Early Redemption Benefit ( ARI ) or Early Redemption Penalty ( AIP ).
In fact, households that took out a loan after 1 July 1999 do not pay compensation if the early repayment is made under the following conditions:
• The property is sold following a change in the workplace of one of the two spouses
In this case, the continuity of payment of the credit by maturity becomes almost useless and the prepayment is a solution to put an end to this situation. There are no penalties to pay.
• In the case of the death of one of the spouses
It happens in this case that the other spouse wants to finish as soon as possible with the credit and that he pays in advance the remaining amount of. There are also no penalties required in this case.
• If one of the spouses is forced to stop work
Such a situation makes the payment of the credit a little more complex and therefore doing it in advance does not give rise to a penalty.
At the conclusion of a major loan agreement, you must take into account the alternative of an early repayment. In case you consider this possibility, it is interesting to be able to negotiate it. Also in the context of loan buyback loans, exemptions are almost never granted.