Monday, December 24, 2007

Tip To Borrowers - Prepayments Are Your Friend

Prosper Borrowers have the option to make payments above and beyond the Prosper calculated monthly payment, referred to as prepayments. Lenders have a wide variety of reactions to this practice, ranging from happiness that the loan is being paid back to annoyance that they didn't earn as much interest as was expected.

For borrowers, however, prepayments are nothing but a good thing. For borrowers who consolidate their >30% credit cards into a ~25% Prosper loan, paying just a little extra can save the borrower hundreds of dollars over the next three years. To be more substantial, a $10,000 Prosper loan at 22% has a monthly payment of about $382. Paying an extra $10 a month, or $393, will save the borrower $414 over the life of the loan and get the loan paid off two months early. If you're working hard to dig yourself out of debt, $400 is a big deal.

To get a handle on how effective prepayments are, play with an online loan calculator (like this one) to see what paying extra can do for your finances. And don't be discouraged if you can't regularly pay more. Even the occasional extra payment for $25 will help you save more in the long run.

3 comments:

112233 said...

1 suggestion:
choose "Make next monthly payment" instead of "Pay down your loan".

For no extra cost, you can take advantage of pushing your due date into the future, and you can advance the due date as much as you like.

abhi said...

For borrowers prepayments are nothing but a good thing

abhi


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Anonymous said...

nice post. thanks.