Upstart — Are there any prepayment penalties? (2024)

FAQs

Upstart — Are there any prepayment penalties? ›

There are no penalties or fees associated with paying off your loan early. You are only responsible for the amount of interest accrued until the date of payoff. If your account has recurring payments on, any payoff amount on or after that date assumes the recurring payment scheduled will be successful.

Upstart doesn't charge any type of prepayment fees or penalties on personal loans.

Yes, you can pay off a loan through Upstart early, and doing so is a smart idea because it will save you money on interest.

Federal law prohibits prepayment penalties for many types of home loans, including FHA and USDA loans, as well as student loans. In other cases, the early payoff penalties that lenders can charge are permitted but include both time and financial restrictions under federal law.

Mortgage loans with an early payment penalty are rare today, but when applicable, the fee can be steep. The penalty can be 2 percent of your loan balance within the loan's first two years and 1 percent of your loan balance in year three.

Check For A Loan Prepayment Clause

As mentioned, you'll want to read the “fine print” – in this case, the Loan Estimate or the paperwork that you'll sign at closing – where you'll find it mentioned prominently in the addendums and/or disclosure documents with all the other terms of your mortgage loan.

Yes, you can make extra payments to pay down your loan, or pay off your loan in full. Additional loan payments will not postpone the due date of the following monthly installment. Please refer to your Upstart dashboard to see details and the distribution of any additional payments being made.

Your loan is a debt obligation that requires you to repay full principal and accrued interest in 36, 60, or 84 monthly installments (depending on the loan term you select). You may also prepay your loan at any time without penalty.

However, 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 the balance before the end of the loan term.

Use a shorter loan term

As a general rule, the shorter the repayment term, the lower the interest rate. For example, if you can afford to repay your personal loan in three years instead of five, choosing the three-year repayment option could potentially get you a lower interest rate.

How to avoid prepayment penalty on personal loan? ›

A 5-4-3-2-1 prepayment penalty, otherwise known as a 5 year stepdown prepayment penalty, charges a 5% fee on the outstanding principal loan balance if the loan is paid off in year 1, a 4% fee in year 2, a 3% fee in year 3, a 2% fee in year 4, and a 1% fee in year 5.

But interest rates are cyclical. When they drop, debt issuers have a strong incentive to refinance their debt at lower prevailing rates. Not so with lenders. They dislike prepayments as they lose the remaining interest payments on the loan.

You also want to review and double check your Truth in Lending (TILA) disclosures and the contract closely before signing it. If there is a prepayment penalty clause in your contract, you can negotiate to have it removed or ask for a different loan.

FHA loans, which are federally backed mortgages designed for low- and moderate-income borrowers, do not have any prepayment penalties. Some traditional mortgage loans carry a prepayment penalty that is assessed if borrowers repay their loans early or add additional principal payments.

Not all mortgages have a prepayment penalty. Typically, a prepayment penalty only applies if you pay off the entire mortgage balance – for example, because you sold your home or are refinancing your mortgage – within a specific number of years (usually three or five years).

First, you must make a regular payment on your loan before you can make a principal-only payment. Regular payments include fees, interest, and a payment made on the principal balance of your loan. After you make your regular payment, you can then apply principal payments.

Lender Risk → For the lenders that provide the debt financing, their investment is paid off early, resulting in a different yield than expected, with the need to reinvest the returned principal at the current interest rates.