Advance interest - succinctly explained


at credits and loans there is no avoiding the subject of interest rates. Interest rates come in many forms. After all, interest is a bank's most important source of income. In the case of advance interest, the bank charges the agreed interest rate for a loan paid out earlier. However, since advance interest is not included in the installment plan due to the earlier payment, it sometimes makes borrowers feel uncomfortable.

Already knew? – In fact, interest on loans is the only fee allowed by law, which is why serious loans without Schufa have to make do without any upfront costs

What is advance interest?

When redeeming one installment loan Each installment contains the interest for one month, which always has 30 days at banks. If the first installment is collected later than 30 days, the period exceeding 30 days will fall. advance interest on. The interest rate of the advance interest corresponds to the agreed rate borrowing rate. Thus become no additional fees due, since the borrower has borrowed the money for a longer period of time.

Preliminary interest is charged by banks if the borrower receives a loan before it is scheduled to begin at the beginning of the month. Since the advance interest corresponds to the loan interest, you have no disadvantage from it. Although you pay more interest overall due to the longer term, you also have the loan for longer.

Upfront interest is often incurred when a loan is paid off in the middle of the month. Because banks often do not debit the first installment at the beginning of the following month. Instead, the debit usually takes place a month later. If the loan is paid out in the middle of a month, i.e. about 6 weeks after the payment.

The interest included in the rate would then only be for the full month. The bank calculates the remaining days of the first month separately as advance interest. This extends the term of the loan by half the first month. Because during this time there is no repayment, only an interest payment in the form of the advance interest.

Advance interest is not to be confused with…

1) Commitment interest

Prepayments are the opposite of Commitment interest, which one mainly from construction financing knows. With the commitment interest, the bank charges a fee for having reserved the money for you and not paying it out until a later date than planned. On the other hand, the advance interest is an interest that has to be paid due to the earlier payment of the loan.

2) advance interest

Prepayments are also not included advance interest to confuse. This means fees for accounts. The bank charges interest on the advance if the cash account or fixed-term deposit account is closed prematurely.

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