If you are here, it’s because by now you know the unsetting truth: some lenders impose you a fee when you pay off the outstanding balance on your loan earlier than expected. This is what is called a prepayment penalty, and as any penalty, it’s never good news. It restricts your freedom to manage your loan, forcing you to stay on the loan contract as long as initially agreed.
Luckily, not all lenders are equal. Some lenders make things easier for you. Some lenders understand that it’s up to you to decide when you should pay off your loan. Camino Financial is one of those lenders.
Let’s explore together the issue of prepayment fees and how come Camino Financial foregoes this nuisance for your convenience.
So, What’s Exactly a Prepayment Penalty and Why Do Lenders Charge It?
A prepayment penalty is an obligatory fee charged by lenders for paying off the outstanding balance before the loan reaches maturity.
A number of different types of loans can carry this fee: mortgages, personal loans, auto loans and business loans.
The prepayment penalty of your loan will be defined and specified in your loan agreement, stating that, if you pay your debt obligation earlier than the allowed timeframe, there will be a charge of X amount.
Therefore, make sure you carefully review your loan agreement and any disclosures or small print before signing the dotted line. That way you’ll be aware of the consequences of paying off your debt before scheduled.
Why Do Lenders and Banks Charge a Prepayment Penalty?
So, at this point you may be thinking “Wait a minute: if you return the funds loaned ahead of time, your lender should be happy, right? After all, you have proved to be a responsible borrower, right?” Wrong!
Consider this: When you pay off your debt obligation before the agreed timeframe stated in your loan contract, you deprive your lender of the possibility to gain a profit. Remember that lenders make most of their money in the form of the interest you pay as time goes by. In other words, when you say “bye” to your debt and bye to unnecessary interest costs, the lender is forced to say bye to what they expected to make from the deal. In other words, the prepayment fee it’s a measure to compensate for their loss.
To sum up, prepayment penalties were built to protect lenders who rely on years or any other specific timeline worth of interest to make a higher return on their investment.
At Camino Financial we put our members first. We see real people where others see numbers. When you pay off your debt earlier, we may lose some profit, but our customer satisfaction is what drives us every day.
But Wait, That’s Not All!
Unfortunately, prepayment penalties are not the only fees associated with your loan. When reviewing your loan contract, be on the lookout for these other possible fees:
- Origination fees
- Third-party fees
- Processing fees
- Maintenance fees
- Late payment fees
How Much Can a Prepayment Penalty Be? How Do Lenders Calculate It?
The amount of prepayment penalty you could be required to pay will depend on the amount of your outstanding balance and the interest you currently pay. Lenders can calculate the fee in two different ways:
- As a percentage of the outstanding balance of your loan
- As a percentage of the interest
For example, the SBA 7(a) loan has a prepayment penalty for loans with terms over 15 years if they are prepaid within the first three years. The penalty is 5% in year one, 3% in year two and 1% in year three.
The prepayment penalty fee in other types of loans is often 80% of six months of interest.
Again, the details will be stated in your loan agreement. Find them out upfront before you close the deal.
To know more about prepayment penalties and other fees, we invite you to read Why Banks Charge a Prepayment Penalty and How Much is It?
Camino Financial Doesn’t Charge a Prepayment Fee on Their Loans. Here’s Why
Now, forget everything you just read. You simply won’t need to worry about a prepayment penalty when you choose to work with us. Camino Financial is different.
We have a quick, simple and transparent loan process for your convenience and peace of mind.
The intention of our lending is to allow our members to re-invest in the growth of their small businesses. If after taking out one of our business loans, your business flourishes from the capital investment, you may wish to use those extra funds to prepay your loan and therefore save in interest expenses. And with us, you have the option to do so. We take pride in your growth and we leave the doors open if you need more capital down your road to success.
What other similar benefits can you find in Camino Financial business loans aimed to save you loan costs?
The fact that our business loans don’t carry a prepayment penalty is only one of the benefits you’ll get when choosing us.
Our loans only have one closing fee: 5% on the loan amount for our business loans, and 6.99% of the loan amount on our microloans. Besides that, the only cost implied in your loan is the interest. Our annual interest rates range from 12% to 24.75% in our small business loans, and from 19% to 34% in our microloans.
And that’s it. There are no other fees. No hidden costs. Again, we are as transparent as we can be.
To have a better idea of the total cost of your loan with Camino, you can use our business loan calculator.
How else can you save on loan costs?
If you are looking for information about prepayment penalties, is probably because the possibility of paying high-interest rates over a long period of time worries you. Then consider this: with Camino, after 9 months of timely payments towards your loan, you can qualify for a second loan with better terms and a lower interest rate.
That’s our way to reward you as a responsible borrower.
We are not done yet…
Want to know more about our flexible requirements? You don’t need to put up collateral. You don’t need to need to present a Social Security Number. You don’t need a minimum credit score or even any credit history to apply.
Offering them better terms and more flexible requirements reflects our commitment to grow alongside our members. We are true to our motto: No Business left Behind.
Learn more about us by reading How Do Camino Financial Small Business Loans Work?
So, what now?
If you already have a loan with us, you will have probably reaped the benefits. Thanks to the funds, your business may have gone unexpectedly well, maybe sooner than you thought. And you may be considering using those extra profits to pay off your loan, save on interest and take that debt off your back. You have the right and the freedom to do it. Simply contact us to let us know.
But, before making such an important decision, we ask you to consider the following. Making timely payments towards your debt is an excellent and simple way to build your credit. And credit matters, especially as a business owner. A good credit score will open you the doors to further access to capital and a variety of business opportunities. You may lose the chance to keep building a strong credit when deciding to pay off your outstanding balance at once.
Also, paying off your loan early may not be the best decision if you can use the money for better, that is, investing back in your own business. You could use those extra funds to renew your equipment, purchase inventory or updating your technology. Think of the growth of your business in the long run. When in doubt, simply ask us. We are here to help.
Don’t have a loan with us and are ready to grow your business? You don’t want the worry of a prepayment fee hanging over your head? Apply for a business loan and know instantly if you prequalify.