For most loans, the loan installment to be paid by the borrower consists of loan interest on the one hand and the repayment of the loan debt on the other. This applies, for example, to installment loans and real estate loans, if it is not a final loan. In most cases, borrowers have no problems paying the loan installments on a regular basis.
However, there are of course sometimes situations in which the previously agreed loan rate for the borrower is – at least temporarily – too high. This can be the case, for example, after unemployment or due to a long illness and the associated reduction in income. In such cases, you should definitely speak to your bank and not simply pay the installments “without comment”. Because often a solution that is acceptable to both parties can be found.
Suspension of repayment is often a good alternative
If there are obvious reasons why the borrower is temporarily unable to pay the agreed loan installments in advance, most banks are quite willing to compromise. Such a compromise then usually includes suspension of repayment. In this case, the bank allows the customer to only pay the interest on the loan over a certain period of time, while the repayment (repayment) of the loan is suspended. For the borrower, the repayment suspension leads to a significant financial relief, because the monthly loan rate is sometimes reduced by more than 80 percent if only the interest has to be paid.
For example, if the remaining debt of the loan is USD 5,000 (without interest) with a remaining term of two years and an interest rate of eight percent has been agreed, the “normal” monthly rate would be around USD 240. If the repayment is now suspended for one year, for example, the customer only has to pay the interest during this time, i.e. 400 USD a year. This leads to a monthly rate of only 33 USD and is therefore a considerable financial burden.
Suspension of repayment extends loan term
In a sense, the suspension of repayment also has an “advantage” for the bank, or it is the lesser evil. Because the alternative would not infrequently be that the customer can no longer pay the installment and ultimately there is a credit default. For the customer, the suspension of repayment naturally has the disadvantage that he has to pay additional interest for the period of the suspension, which would not have been incurred with regular repayment. Because with the installment loan, the interest is always calculated from the original amount. Since the term of the loan is extended by the period of the repayment suspension, the customer then of course has to pay more interest in total. By the way, banks generally only agree to a suspension for a maximum of one year.