Banks impose an early payment penalty if consumers want to pay off their loan debt before maturity.
So, what is an early payment penalty?
An early payment penalty is the amount of a penalty applied to loans with housing financing as a lump sum or occasional payment outside of the payment plan due to a decrease in the interest income of lenders due to payments. The early payment penalty applies only to home loans. There is no penalty for early payment on vehicle and need loans.
What is the legal basis for an early payment penalty?
37 Of The Consumer Protection Act. The article constitutes the legal basis for an early payment penalty. According to this article entitled Early Payment: IRA Early Withdrawal Penalty
(1) the consumer may make one or more installment payments that are not due, or pay off the entire housing finance debt early. In these cases, the Housing Finance Agency is obliged to make a discount on all necessary interest and other cost elements according to the amount paid early.
(2) if the interest rate is determined as fixed, early payment compensation may be requested from the consumer by the housing finance organization if one or more payments are made before maturity, provided that they are included in the contract. Early payment compensation may not exceed one percent on loans whose remaining maturity does not exceed thirty-six months, and two percent on loans whose remaining maturity exceeds thirty-six months, calculated by deducting the necessary interest and paid early by the consumer to the housing finance organization. Early payment compensation cannot be requested from the consumer if the rates are determined as variable.
As can be seen, early payment compensation cannot exceed one percent on loans whose remaining maturity does not exceed thirty-six months, and two percent on loans whose remaining maturity exceeds thirty-six months, calculated by deducting the necessary interest and paid early by the consumer to the housing finance organization. With this article, the amount that can be taken as an early payment penalty is fixed by law. The limit specified in the regulation is the upper limit and the bank can request a penalty for closing less early than this if it wishes.