Credit union loan

PetKing

Hi all,

Im not sure if this is the right thread for it, but Im getting lost with the map, and the seems the closest!

Quick question about Credit Unions. I have a loan outstanding since 2008 that I am paying back, but would like to finish sooner. I have saved up enough now to just pay off the loan and interest. What I am wondering is, will I have to pay a penalty fee for finishing the loan faster than the agreed term?

Thanks for any help that can be offered.
Patking.

Slozer

Most credit unions allow you to pay off your loan without any penalty

The Recliner

Moved from Economics, probably more suited to here

coylemj

Unless you've signed up for a fixed interest rate, most lenders will allow you to pay back the outstanding capital and interest without penalty provided a decent period has elapsed since the loan was taken out given that they have to do an amount of administration connected with the taking out of the loan.

Since the loan was taken out two years ago I shouldn't think a credit union would have any problem taking your money, especially in the present climate!

Just ask.

Enright

Absolutley NOT, Credit Union loans are designed to allow the borrower to pay off early and without penalty

just look at your last statement, pay the outstanding balance plus whatever interest is due. You will probably get your divident about now as well

PetKing

It was a fixed rate of interest, no mention of any penalty on the loan contract. Thanks for the advice!

coylemj

PetKing wrote: »

It was a fixed rate of interest, no mention of any penalty on the loan contract. Thanks for the advice!

In that case you may be penalised for an early redemption of the loan. While politicians criticize banks for doing this, there is a very good economic reason behind it. If the lender sourced the money at a fixed rate and that rate (plus a margin for profit) was passed on to you, you entered into the arrangement with your eyes open and you took the risk that interest rates might come down (which meant that you were losing) or they could go up (you gain) but either way the repayments were fixed and that suits a lot of people since it gives them certainty.

In the case of a credit union, the money they loaned to you was probably sourced by offering depositors a fixed rate of interest for a specified period of time.

If you chose to pay back the loan early, the credit union is still legally obliged to pay the depositors the rates that were fixed back in 2008 but now they have your cash, rates are lower so they will lose money because they can't lend out the money at the same rate that you agreed to pay back in 2008 and it goes without saying that they cannot close down the fixed-rate deposit accounts that funded your loan.

The result of this is that most lending institutions will penalise you for the simple reason that if they don't they will lose on the transaction because you have chosen to give back the money early. Naturally if interest rates went up you would be mad to pay the loan early and as far as the lenders are concerned you can't have it both ways.

romah

PetKing :

Credit Unions do not charge any penalty for paying loans off early...the balance that is outstanding including any accrued interest is what you owe.

Coylemj :
Credit Union loans are variable rates in theory but rarely change over the period of the loan ...making them fixed in a way in practice.

I think you are getting into the whole ALM a bit much ..it hasnt really caught on in credit unions...yet!!..

A variable rate in the banks these days is exactly that ..very variable... and you are charged the penalties for the reasons you stated..