Why do lending organization have prepayment penalties.

[Iboro]

I thought that it should be the joy of every lenser if the people they disburse out loans to can pay back the loan within a short period of time. But my friend just told me she paid prepayment penalties for paying the loan too early.

She got the loan and some inflow of funds came in and she was able to pay back a 6 months loan in two weeks. The lenders said she must pay a prepayment penalty for paying the loan too early.

Is that the right thing to do?

 

[Salt]

I also heard about it and it's in their clause and terms so they are not doing anything illegal and we cannot challenge them so its better to pay on time.

 

[Kane]

We do not have penalties for prepayment, we have to pay penalties for late payment, though. Penalties for prepayment does not look ethical but this is completely legal in many countries.

 

[arunima]

When we did pre close our home loan, we had to pay some amount for prepayment penalty. But still it was a win win situation for us. Not only did we feel free and relieved from the monthly burden, we did save a substantial amount by pre paying the loan amount despite paying the penalty.
It seems the installments that we take for over a period is invested into various schemes and the institution earns from that. Also it takes a part of money that it would loose.

 

[Salt]

When we did pre close our home loan, we had to pay some amount for prepayment penalty. But still it was a win win situation for us. Not only did we feel free and relieved from the monthly burden, we did save a substantial amount by pre paying the loan amount despite paying the penalty.
It seems the installments that we take for over a period is invested into various schemes and the institution earns from that. Also it takes a part of money that it would loose.

We need to look at the positives and even if we need to pay a part of the money in penalties still we need to understand that we don't have that extra burden on our chest

 

[Good-Person]

I also heard about it and it's in their clause and terms so they are not doing anything illegal and we cannot challenge them so its better to pay on time.

lending organisations usually deal in usury and they earn interest money. Such kind of organisations always face such kind of issues all the time.

 

[Salt]

Its not an issue but its in their terms so if you repay your loan before the schedule you still need to pay some charges with it

 

[Good-Person]

Its not an issue but its in their terms so if you repay your loan before the schedule you still need to pay some charges with it

Paying extra interest money is something that may cause issues. This is because many times these lending institutes borrow huge sum of money and they have to pay a huge sum of interest as well. This could be hard for them to do many times.

 

[Salt]

They do let us pay more but still, we are saving money by paying before our payments are due so it's fine as long as the penalty is not more than the savings

 

[Bisolami]

We do not have penalties for prepayment, we have to pay penalties for late payment, though. Penalties for prepayment does not look ethical but this is completely legal in many countries.

It is legal here because it is not good to go against the agreement between you and the lending platform.

 

[Salt]

There are some penalties but at the end of the day you will still save money so its fine to pay before time

 

[Kane]

There are some penalties but at the end of the day you will still save money so its fine to pay before time

That's true, even if you pre payment penalty, you will save some money. By the way how much is pre payment penalty in your home country?

 

[Salt]

That's true, even if you pre payment penalty, you will save some money. By the way how much is pre payment penalty in your home country?

I am not sure because we have never borrowed money like that so never faced any such thing but I have heard that the cost is less than what we have to pay if we stick with the planned repayment