Repayment plan
In the field of lending, the repayment plan is an important and fixed component of the entire process. The repayment plan itself records in writing the shares of interest and repayments together with the corresponding agreed dates of maturity and lists them in detail.
The plan starts with the first installment and repayment and lists all stages of repayment until the long-term loan is finally paid off.
Legal basis
A loan agreement lists all the terms of a loan, from the amount that was credited and borrowed, to the term over which the loan is granted and must be repaid, to the individual periods of a loan's repayment. From all of this information, a complete repayment plan can ultimately be compiled and presented.
What is important for every consumer at this point is that such a repayment plan is an immutable obligation in the context of a consumer loan, i.e. in a contract for a loan that is granted to a consumer by an entrepreneur. That the repayment plan is part of this contract is even enshrined and anchored by law. This is detailed in the so-called Introductory Act to the Civil Code, specifically Art. 247. In § 6, in the first paragraph under no. 4, there is the reference to § 492 BGB, which governs consumer loan agreements and the special provisions that legally apply to them.
This concerns in particular paragraph 3 and sentence 2 derived from it. Accordingly, a borrower can demand from the lender at any time the statement of the repayment in a plan. The lender must prepare and provide this repayment plan.
Minimum information of a repayment plan
A repayment plan within a loan has to comply with various minimum information requirements. These include, on the one hand, the type of loan, as well as the amount of the loan, the interest rate, both nominal and effective, furthermore the installments of interest and principal and all other agreements, such as the suspension of repayment at a certain time, as well as the resumption and continuation of repayment.
Purpose and function of a repayment plan
For a loan that is set over the long term, as well as for loans related to investments or possibly in the context of financing a property, a repayment plan must be drawn up and prepared.
With the repayment plan, the borrower has the opportunity to see, broken down, all his payment obligations arising from the loan, with amounts for interest and principal detailed, and to reliably orient himself on them throughout the entire repayment period. He can read exactly when each repayment due date is scheduled.
The loan agreement becomes clearly comprehensible and transparent by means of a repayment plan. Whenever a due date is listed in the repayment plan, the respective amount of interest and principal must be summarized in parallel. This shows the borrower the so-called total payment and the total amount is specified concretely for that date. The borrower can read from his contract and repayment plan which type of repayment was agreed in the loan agreement. Specifically, these are the installment (rate) repayment or the annuity repayment.
However, it should be pointed out that a repayment plan is only possible if a fixed interest rate has been agreed in advance between lender and borrower. The repayment plan can only break this principle if it lists only the installments of the repayment and otherwise does not provide further detailed information.
Calculate the repayment plan online
There are many different options on the internet to create a repayment plan online. Various versions of online calculators are offered for this purpose. The repayment calculator on the internet is a help to anyone who wants to repay a loan amount and where interest has been agreed. Once the important loan parameters have been entered, it quickly provides an overview. With these data the repayment calculator produces an individual repayment plan, detailed, transparent and clear.
The repayment plan using a concrete example in the repayment calculator
If a borrower, for example, has decided to build a house and cannot obtain 100% of the necessary money otherwise, which is probably the case in most situations, applying for a loan and financing the construction in a professional manner is called for.
Using a comprehensive repayment calculator, even various financing offers can be compared with each other. All important details and specifications must be entered into the repayment calculator. In this concrete example, these parameters include the start of the construction financing, the amount that is being loaned, but also the disbursement, any fees and costs, of course the interest rate, as well as the repayment rate and the fixed-rate period, and also the interest rate after the end of the fixed-rate period.
How the repayment calculator works
First, the start of the loan is set in a repayment calculator. Here both the month and the year of the loan must be entered. Usually the corresponding month and the appropriate year are selected via a so-called drop-down menu. Once these first parameters have been set, the repayment calculator adopts these settings and the influence on the calculator has begun at this point. After that, the loan amount and the corresponding currency, in most cases the euro, are usually entered.
The next setting concerns the disbursement percentage and is entered or selected as a percent. Any fees or costs that may be incurred by the borrower must also be entered, as they affect the total amount and, above all, the repayment. Finally, the interest rate is entered. This is usually the so-called nominal interest rate. This is the bare, pure interest rate that has been or is to be agreed with the lender by contract.
Role of interest in the repayment plan
Other costs and fees, such as those related to processing the loan, are not part of the nominal interest rate but of the effective interest rate. A repayment can also be specified as a percentage. A corresponding repayment rate is entered for this purpose. Furthermore, the borrower must pay attention to another important point, the so-called fixed-interest period. This refers to the number of years during which the lender will adhere to the agreed interest rate.
Within this agreed fixed-interest period the interest rate remains the same for the borrower. The longer this agreed period is, the more favorable for the borrower, as experience shows that interest rates often rise significantly after the end of this period and repayment then threatens to become a real challenge for the borrower.
Thus, a repayment calculator fulfills the important task of displaying all the key points of the loan in detail and with clarity for each borrower in advance. Using this information, the borrower can have an extensive repayment plan drawn up that provides clarity from the start and offers important security in servicing the loan over time.