Ignoring why I would do so, I am wondering if it is possible to take out a personal loan (at, say, ~6% annual interest) and then pay back the principal + any interest back within a short time (within a month)? Basically, do loans allow for faster-than-scheduled repayment?
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20Many people do this every month by paying off their credit card bill in full before interest accrues.– Todd WilcoxCommented Sep 10, 2021 at 20:39
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5Yes and no my new honda agreement says if i try to pay off my entire loan i will owe all of the interest on it regardless if i pay it off 3 years early. Be careful what you sign and never let your emotions get a hold of you. Had i really known this I would have not purchased my honda. My house on the other hand yes i could avoid all that interest by paying it off early.– JonHCommented Sep 10, 2021 at 22:36
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2Many years ago I wanted to buy a truck but had the wrong checkbook (remember those?) with me. The salesman said "No problem, we'll write you up for a loan. If you pay it off within a week there is no interest." I did and there wasn't.– Ross MillikanCommented Sep 11, 2021 at 2:08
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@RossMillikan Of course in your case the free service you got helped the salesman secure the sale, so I would count that more like an anecdote/exception.– SJuan76Commented Sep 12, 2021 at 15:05
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@SJuan76: that wasn't special for me. This was part of the standard terms, presumably for the reason you cite. I have also had mortgages both with and without prepayment penalties. I also upvoted Eric's answer, as it is the correct one.– Ross MillikanCommented Sep 12, 2021 at 15:32
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8 Answers
It will depend on the terms and conditions of the loan you take. Some loans have penalties on early repayment while others do not.
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40...and others have potentially significant service fees that have more or less the same effect. Commented Sep 9, 2021 at 19:39
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3Simple answer, but correct. Lenders can put any conditions they like on a contract (within local law) and only the contract will tell you whether you can or can't. I'm not aware of anywhere which actually stops you repaying, but penalty charges often apply.– GrahamCommented Sep 10, 2021 at 11:08
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The terms might also specify that the payment needs to explicitly apply to principle, rather than defaulting to pre-paying the next X months' payments (during which time the normal interest may accrue).– minnmassCommented Sep 10, 2021 at 20:53
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1@Graham my first car loan didn't have penalties, but it had a rather unique way of calculating the interest owed. If you kept the loan to full term you paid the stated rate in total, but if you paid it off early much of the interest was front-loaded. I figured this out after only a couple of months and thankfully the penalty wasn't too bad yet - if I'd had it for a year it would be a different story. Commented Sep 12, 2021 at 3:06
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1@MarkRansom: in years past (I don't know about today) car loans used the "rule of 78s" for calculating how much of a payment went to principal. It comes because 78 is the sum of the numbers 1 to 12. I forget the rule, but it was disadvantageous to the borrower to pay off early in that not much interest was saved. Commented Sep 12, 2021 at 15:30
"Immediately" per the title, mortgage refinance loans and many other consumer loans are covered by the Truth in Lending Act providing a Federal 3 day "right of rescission", where you can cancel the loan within 3 days and owe nothing.
Pennsylvania separately provides a 3 day right to rescind for any contract over $25 where a salesperson called or came to your house.
answered Sep 9, 2021 at 20:06
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2I would assume that a loan agreement rescinded under such laws would not appear on (or, at least, affect) a person's credit report (in case the OP's "ignored reason why" was to improve their credit score). Commented Sep 10, 2021 at 6:18
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3The seller got his provision, you got peace, and the cycle continues ;-)– epa095Commented Sep 10, 2021 at 9:00
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1I exercised this with a door to door privatized electricity seller who would not leave. Literally would not leave from your house? I am not in the US but I thought that you had pretty strong property trespassing laws (stringer than ours in France at least, and we can certainly call the police if someone does not want to leave)– WoJCommented Sep 10, 2021 at 15:13
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2@BorisBukh A two minute call to the company the next day was for sure less time and effort on my part than the alternative of making a 911 call and waiting for a response. Commented Sep 10, 2021 at 15:24
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2@user662852 in my experience, 911 has a faster response time than trying to cancel a service from a company, but I suppose your results may vary. Also, simply threatening to call the police is usually sufficient to scare off a hostile salesperson Commented Sep 10, 2021 at 17:32
I think you're describing credit cards.
It's literally a 30-60 day (depending on when you make the purchase) interest-free loan that you should pay back on time to avoid interest.
If not credit cards then a HELOC (Home Equity Line of Credit).
Just about any line-of-credit loan will fit your description.
If you explicitly want a "personal loan" then you just have to read the conditions to make sure there are no restrictions on early repayment.
answered Sep 10, 2021 at 13:06
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1Not only "line-of-credit" loans. I once took out a standard unsecured bank loan for about $50,000 (in the days when annual interest was more like 26% than 6%) to buy shares in the IPO of a company I was very familiar with, sold the shares at significant profit on the same day as the issue, and paid off the loan three days after taking it out. No financial penalties involved. Commented Sep 11, 2021 at 0:35
This is commonly allowed on margin loans. I use this from time to time either when replacing one security with another or when selling a security to cover an expense.
The loan covers the time period between when then funds settle for the security sold and when the expense is paid for or the funds are provided for the security bought. If settled within the same business day, there is no interest due.
If you have more than $2,000 worth of stocks, mutual funds, or ETFs, in a brokerage account, there's a good chance these kinds of loans are available to you.
answered Sep 9, 2021 at 20:41
It simply depends on the type of loan.
Typically, with a "personal loan" from a bank, yes, you can do precisely this.
I have indeed done this a couple times for various reasons and repaid the whole thing after just days, and paid only a trivial amount of interest on the whole affair (like "a dollar" or such).
So yup, no problem.
But, very simply, some loans have fees attached (no refund on the fees) and some loans simply do not work like that, you pay typically some sort of penalty if you pay off early.
It depends on the type of loan.
A mortgage, personal loan, etc. will typically start accruing interest immediately. If you pay it back the same day, there may not be any interest, but if you pay it back 29 days later, you will likely owe most of one month's interest. Depending on your unstated goal, it may still be worth it. For instance, I recently took a personal loan from SoFi, got a bonus for taking said loan, and then paid it back a week later. I paid a week's interest but that was much less than the bonus.
If you use a credit card it is technically a loan, but there is often a grace period, and if you pay it off in that period, they don't charge interest. That's not always true, though. For instance if you are carrying a balance there is no grace period. For cash advances or balance transfers there is also no grace period and often a fee.
Yes, in fact as long as you pay in legal tender they cannot refuse your payment. It is quite common that people who intend to build a credit record open clothing accounts at big retailers buy clothes on credit and pay them off the next month.
Yes! You can pay off a personal loan early, but it may not be a good idea. Some lenders may charge a prepayment penalty fee for paying the loan off early. The prepayment penalty might be calculated as a percentage of your loan balance, or as an amount that reflects how much the lender would lose in interest if you repay before the end of the loan term. The calculation method varies from lender to lender, but any prepayment penalties would be outlined in your loan agreement.
There are a number of lenders that don't charge a prepayment penalty. Typically, you'll need good to excellent credit to qualify with such lenders.
