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What exactly is a Prepayment Penalty?
There’s a lot of small print on that loan agreement that describes most of the nitty-gritty regarding the responsibilities, which is the reason why it is essential to see your agreement at length before you to remain the line that is dotted. And among every detail associated with the agreement to pay for awareness of, prepayment charges are an one that is important.
A prepayment penalty is strictly exactly what it seems like: a monetary cost if you pay off the loan in full before the maturity date that you would be subject to. Loan providers like making loans if you pay the loan off early, that profit would be slashed because they make money on interest, so. And also to recover their losings, they may charge a prepayment penalty.
The prepayment penalty rate – and whether or otherwise not one exists at all – should be specified in your loan agreement. Having said that, charges usually are smaller the less your debt while the longer you’ve had your loan. Make sure to determine if a prepayment penalty supply exists on the agreement and just how much you will be charged in the event that you pay back your loan before its original due date.