Life has its pros and cons and sometimes you may face a predicament where you require only a little extra cash. That loan will come in handy at such times. However it may periodically happen that your particular situation that is financial turns quicker than anticipated and enables you to pay back a sizeable amount regarding the loan and clear just as much financial obligation as you are able to.

Paying down your debt faster helps lower the interest that is total, and also this in change means you may spend less time in debt. All is well so far. But before you head into the financial institution blinking a wad of money, familiarise your self with a few facts. It’s understandable why there’s a penalty for delayed payment, but do you realize that one may be penalised for early repayment as well?

What exactly is prepayment penalty?

Due to the fact title indicates, a prepayment penalty is a burden that is monetary need to keep once you spend your loan off previously than specified within the agreement. In the event that conditions and terms of one’s loan contract have a prepayment clause, you shall be penalised if you clear your financial troubles early.

Should you feel this seems counterintuitive and they are wondering why no body would wish each of their money at one go, think of it in this way – when you repay that loan early, the lending company will maybe not have the expected interest (for loan providers, the attention is the revenue).

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