|
Understanding The Early Repayment PenaltyBy John Mussi |
|
Some lending companies have an early repayment penalty that will be charged when a borrower pays back the loan earlier than the agreed term. And these penalties should be avoided by the borrower.
Many people believe that it is a good idea to pay back in full the amount that they have loaned. Paying the loaned amount may mean that the interest can be avoided. Unfortunately, some lending agencies have set up a system in which the borrowers who pay earlier will still be able to pay the interest. This system is in the form of the early repayment penalty.
How much is the early repayment penalty?
When the borrower is charged with an early repayment penalty, he is not really reducing the amount that he has loaned. A loan which is paid earlier may not be lesser than the amount that the borrower will pay if he has followed the loan term.
This early repayment penalty is usually equal to one or two month’s interest. But it can be greater especially when the loan is repaid far earlier. This means that the earlier is the loan repaid in full, the higher is the early repayment penalty. But it is still possible to avoid paying the early repayment penalty even when the borrower has decided to pay earlier and in full.
How can a borrower avoid the early repayment penalty?
The most obvious way of avoiding the early repayment penalty is to not pay earlier than the agreed loan term. But there will be instances when the borrower needs to pay in full earlier. And when the borrower plans to do this, he must make sure that he will not be paying additional costs in the form of early repayment penalty.
The best thing to do is to find a lending company that does not charge an early repayment penalty. A person must realize that not all lending companies practice this system of charging early repayment penalties. Some lending companies that charge very low interest rates don’t even charge such penalties or fees.
Then, the borrower must be aware that when he carries out debt consolidation, he is actually paying the debt earlier than the agreed loan term. Such an action may be subject to being charged with penalty. Therefore, before proceeding to debt consolidation, the borrower must find out if the various loans that he intends to pay earlier do not involve an early repayment penalty.
What are the other names of the early repayment penalty?
Some borrowers can be led into thinking that the lending company does not charge an early repayment penalty. But they charge fees that take on the role of the early repayment penalty. In fact, these lending companies utilize other names for the penalty. Some of these names are the following:
• Early redemption fee
• Redemption charge
• Financial penalty
Therefore, the borrower must carefully read the whole loan agreement, especially the part that states certain conditions when the borrower decides to pay earlier.
You may freely reprint this article provided the following author's biography (including the live URL link) remains intact: |
|
|
|
|
About the Author |
| John Mussi is the founder of UK Bad Credit Loans4u who help homeowners find the best available loans via the http://www.uk-bad-credit-loans4u.com website. |
Related Searches |
|
early repayment, early loan repayment, early repayment charge, term loan, early redemption fee, lending company, loan lending company, early fee loan redemption, debt consolidation loan, debt consolidation lending, debt consolidation, debt consolidation company |
|
|
|
|
|
|