Changes to Prepayment of Consumer Loans

Following extensive public discussion, rules for calculation of prepayment fees for consumer loans shall finally change from September 2024. The adopted changes shall be less strict against the consumers than originally expected.

Currently, banks can charge merely the costs reasonably incurred due to early repayment of residential loans. The Czech National Bank interpreted this term to cover only administrative costs of the lending institutions and excluding any financial costs such as decrease of the interest income. Newly, lenders will have the right to charge costs up to 0.25 % from the prepaid amount for each year remaining till the end of the fixed interest rate period, however, maximum 1 % of the prepaid amount. Such maximum limit protects primarily the clients with five-year and longer fixed interest periods.

The amended Consumer Loan Act further specifies in more detail, what shall fall under the definition of costs reasonably incurred by a lender in connection with prepayment. Such costs shall consist of necessary administrative expenses, up to CZK 1,000, plus the difference between the agreed interest rate and a reference interest rate to be published by the Czech National Bank. 

The new rules shall also apply to consumer loans agreed prior to the effectiveness of the amendment from the day of the start of the next new fixed interest rate period. 

Czech lawmakers also extended the catalogue of cases, in which the banks are not entitled to request any prepayment charges. Existing exceptions include prepayment due to death or long-term disease of the borrower, prepayment within 3 months after the lender informed the borrower about the newly applicable interest rate, etc. In addition, consumers should not be obliged to pay charges connected to early repayment of residential loans after 24 months from conclusion of the loan agreement, in case the underlying real estate has been transferred or if the real estate is subject of division of joint matrimonial property. 

Due to the new maximum limit of prepayment charges, it can be expected that consumer loan providers will tend to shorter periods for loans with a fixed interest rate.

By Mgr. Denisa Molnár

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