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What Is A Prepayment Penalty On A Personal Loan?

What Is A Prepayment Penalty On A Personal Loan?
Written by Publishing Team

Select’s editorial team works independently to review financial products and write articles that we believe our readers will find useful. We may receive a commission when you click on links to products from our affiliate partners.

Personal loans have become one of the fastest growing categories of debt in the United States thanks to their ease of use, fast financing, and flexibility when it comes to how the money is used. For example, personal loans can be used to pay for a wedding, vacation, funeral, medical bill, home repair, renovation, and more. Many people also use personal loans as a way to consolidate their debts, and you can usually borrow up to $100,000, depending on your credit eligibility and the maximum amount the lender allows.

But there is still a lot you should know about personal loans before you decide to get one. Like any other form of debt, personal loans are repaid monthly with interest. But this may not be the only fee you are charged. Some personal loan lenders also charge an origination fee and late payment fee, but the other, and most unusual, fee you should be aware of is the prepayment penalty.

Below, specify what you need to know about prepayment penalties on a personal loan, including the cost, and how to know if the loan you’re applying for carries these fees.

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When looking for a personal loan, it can be helpful to compare several different offers to find the best interest rate and repayment terms for your needs. With this comparison tool, you will only need to answer a few questions so Even Financial can determine the best offers for you. The service is free, secure and does not affect Balance level.

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What is the prepayment penalty?

How much does a prepayment fine cost?

The actual cost of the prepaid penalty will vary depending on how it was deducted. It can be shipped in one of three ways:

  • As a percentage of your loan balance
  • Given how much interest the lender has lost since paying off the loan early
  • as fixed fee

For this reason, a prepayment penalty can cost you anywhere from a few hundred to a few thousand dollars, depending on how much you borrowed and how you charged it. So, although paying off your loan early can help you save on the interest charged, you may in turn lead to prepayment fees.

Be sure to do the math before paying off your loan early. If you’re about to finish paying off a personal loan balance and want to prepay the rest of the amount you owe, be sure to take a look at the cost of a flat prepayment fee versus the remaining interest on the loan. It can be cheaper to keep making monthly payments than to pay the flat fee.

How do you know if your personal loan includes a prepayment penalty?

LightStream Personal Loans

  • Annual Percentage Rate (APR)

    2.49% to 19.99% * When registering for automatic payment

  • The purpose of the loan

    Debt consolidation, home improvement, car financing, medical expenses, wedding and more

  • loan amounts

  • Conditions

  • Credit required

  • Incorporation fee

  • Early payment penalty

  • deferred fee

Discover Personal Loans

  • Annual Percentage Rate (APR)

  • The purpose of the loan

    Debt consolidation, home improvement, wedding or vacation

  • loan amounts

  • Conditions

  • Credit required

  • Incorporation fee

  • Early payment penalty

  • deferred fee

minimum

Editorial note: The opinions, analyses, reviews or recommendations in this article are those of the editorial board alone, and have not been reviewed, approved or otherwise endorsed by any third party.

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