How to Avoid Huge Prepayment Penalties

It happens a lot of time that the borrowers land up some extra money in their hands and thus pay off their loans for their new 1BHK flat in Pune before the maturity period. The lender faces loss in terms of interest due to this prepayment. Hence, the lenders have a policy which enables them to make up the loss caused by the prepayment. A penalty is charged to the borrower, which normally is the calculated taking into account the interest charged for some fixed period or the remaining loan balance. This is known as a prepayment penalty, which a borrower would normally want to avoid. You may not be able to avoid it fully, but a few tricks can definitely reduce it.

Define the Details in the Contract

To keep your prepayment penalty as low as possible, it is required that you draft a strong contract which states all the rules and action which needs to be followed in case of prepayment. Such a contract will give you a legal backing in case the lender asks for a penalty amount which exceeds the amount mentioned in your contract.


Evaluate Financially

Settling the prepayment penalty can be beneficial sometimes, because it saves the amount that the borrower would have lost otherwise in interest. To benefit in this way, the buyer needs to calculate and evaluate the finances that are involved in the process. You should make sure that the calculated penalty is lesser than the amount you would have paid originally in interest for your new purchased home.

Conversation with Useful People

Your local bank officer can hardly help you in this case and you will need to crack conversations with the branch manager if you want to make some effect. You need to negotiate with him and show him how the reduction of penalty will be a good course of action.

Stay Polite

Do not sound demanding or aggressive while asking the manager to reduce the penalty. Approach the manager with the matter in a cool and calm manner and talk professionally and in a mature way. Remember that you need the favour not the lender, so stay polite and friendly to ensure that people take care of the matter in a better way.

Deals Should Be Written Down

You should always assert for such conformations in writing. Always document all the agreements that you enter in, mainly the ones which involve large money. It is possible that you might be cheated upon or that things might turn against you, in which case the documents can help.