How to pay off a personal loan early
Are you currently making monthly, bi-weekly or weekly payments on a personal loan that you would like to pay off in one lump sum?
Paying off a loan early is called prepaying. In this article, you’ll find lots of useful information about prepaying a personal loan.
Complete or partial prepayment?
Loans can be prepaid in part or in full.
Complete prepayment means that the borrower repays the outstanding balance in full. For partial prepayment, part of the outstanding balance is paid off, and the interest is recalculated based on the remaining balance.
Personal loan prepayment regulations
According to regulations, any person who takes out a personal loan is entitled to repay part or all of it before the end of the agreement. This is called loan prepayment.
When repaying a loan early, the borrower may have to pay penalties, usually in the form of a compensation fee. This is because private lenders and financial institutions get most of their revenue from the interest earned on the loans they provide. They will try to minimize their losses by claiming compensation in proportion to the interest that would have been paid until the end of the agreement according to its original terms.
However, the penalty should never exceed the total amount of interest the borrower would have had to pay if they had taken the maximum amount of time allotted to repay the loan.
How to prepay a personal loan
To pay off a personal loan early, the borrower must first inform the bank or private lender. The borrower should not have to provide any justification.
The simplest way to prepay the loan in part or in full is to pay off the balance at the time the next payment would have been made. This strategy can help you avoid interim interest.
No penalties for loan prepayment with DMO Credit
Paying off a personal loan early can be a good way to save on interest, but it’s important to check the loan agreement beforehand, because there may be penalties for doing so.
At DMO Credit, all of our loans are open. That means you can pay off your loan at any time without incurring any penalties. If you pay off your loan before the end of the first month, we’ll even give you a $100 discount on the associated fees.