The term repayment is used when there is debt. This is referred to in monetary transactions when the outstanding amount is paid. This can be done according to plan or outside of a plan.
Redemption in general
There are a variety of monetary claims, including bonds, loans, and credits. The repayments also occur with each of these claims. They have two forms of liquidity. This leads to an increase in liquidity for the creditor. On the other hand, the debtor is charged with regard to his liquidity. Of course, these aspects are particularly important for a debtor whose situation must be taken into account in relation to the development of his income. The amount of the repayment must be adjusted accordingly. If a credit agreement is concluded, a repayment agreement is concluded that secures the payment. If the repayment is kept low, there is a higher interest burden. This also extends the term of the loan. However, agreements that lead to excessive repayment should not be concluded. In turn, this can lead to an increase in credit risk from the burden on liquidity for the creditor. It can be problematic when income declines, which can happen, for example, through unemployment. A debt trap can easily arise.
Legal issues related to redemption
A repayment always has a legal character. This is laid down in § 362 ff. BGB, whereby there is talk of a fulfillment. However, these provisions also apply to redemption. A very simple explanation can be found in Section 362 (1) BGB. If the service owed was rendered to a creditor, the obligation also expires. However, it is not specifically described in relation to the service owed who has to provide it. Usually, this is the debtor who is responsible for paying the debt. However, third parties are also authorized to make repayments. These people can include spouses, relatives or company partners. So for a creditor it will not necessarily matter who exactly pays his claim. Among other things, §§ 366, 367 and 270 of the BGB also apply to questions regarding repayment.
The types of redemption
With banks in particular, there are differences within the repayment. On the one hand, there are scheduled and unscheduled repayments. The difference between these two forms of repayment is that scheduled repayments are concluded on the basis of an agreement. If there is an unscheduled repayment, this need not be based on an agreement. In addition, one-time repayment with its settlement at the end of the term of the loan and the installment repayment are also to be mentioned. With this form of repayment, the entire loan amount was distributed proportionately over a certain period.
The times when the respective repayment is to be made are set out in writing. What these repayments have in common is that payments of additional interest are not taken into account. The situation is different with annuity repayment. With regard to the repayment, the interest payments are mathematically related to this. The annuity amount always remains the same. The interest and the redemption portion form the annuity amount. If the interest portion of this decreases, however, the portion of the repayments increases. There are also long-term loans, which include real estate and investment finance, and bonds. Repayment is also known as amortization.
The repayment extension
Although the term repayment extension appears to be clear, it is not quite as it appears. It is not a question of the fact that a repayment is suspended. Rather, it means that a repayment can be extended if a payment has been made in banking. The discount was originally retained. By extending the repayment, it is possible that the discount can also be paid. In this way, the total loan amount is available to a borrower. If you look at the repayment date from a banking perspective, this means that two loans are made available to a borrower. On the one hand, a main loan is granted here. The second loan is the repayment loan, which is provided in the amount of the discount. If repayments are made later, these are initially offset against the loan of the repayment extension. Only when this loan has been repaid does the phase begin in which the principal loan is repaid.
It may happen that there are problems with the repayment of the repayments and that contractually stipulated times cannot be met. Then there are disruptions in performance that are caused by the debtor because he is in arrears. At this moment, the rules of termination, which have been laid down in writing in the loan agreements, can take effect. This gives the creditor the right that the loan can be terminated immediately and the repayment of the outstanding amount can be requested. This is also referred to as a cross default clause. This clause prevents debtors from changing the order of repayments themselves if there are debts to several creditors.
This could happen if not all of the upcoming services can be fulfilled. A remedy for a disruption in the repayment can be if the repayments are suspended. Redemption contributions are reduced, while redemption periods are extended if a new redemption agreement is concluded. However, this also means that the term of a loan will be extended in this case.