Two weeks ago, we presented a new early repayment policy, that was intended to protect the lender’s interests. According to that policy, borrowers were required to pay the full interest amount even if they repay their loan early.
However, updates don’t always work as desired, and the prepayment update became our most controversial one. We received a lot of feedback from borrowers and lenders, who considered the new policy went too far and should be reviewed. We are just grateful for your opinion and can’t ignore it.
Today we present a new prepayment policy that was based on the feedback of CoinLoaners. Long story short, new prepayment logic seeks to resume that flexibility to the borrower, but still, ensure returns for the lender.
How New Prepayment Policy Works
Two things had remained constant. First, borrowers pay no penalties or extra fees for early loan payments. Second, in the case of early repayment, the loan principal must always be repaid in full.
Concerning interest repayment, here's what's different:
- The interest of short-term loans (7 - 30 days) should be repaid in full if a borrower repays their loan early.
- If a long-term loan (2 - 36 months) is already repaid for 50% of the total interest amount or more, a borrower pays no extra interest in the case of early repayment.
- If a long-term loan is repaid for less than 50% of the interest amount, paying off early, a borrower covers 50% of the total interest amount.
The picture will undoubtedly become clearer when we look at the example.
Let's Us Review the Figures
- Loan amount — 1000 EUR;
- Loan term — 1 year;
- Interest rate — 12% APR;
- Total interest amount — 66.2 EUR;
- 50% of the total interest amount — 33.1 EUR (66.2 * 0.5);
- The amount of the monthly payment ~ 5.52 EUR.
This loan can be prepaid in different scenarios, as described below.
Let’s say, the borrower was paying according to his repayment schedule for the first six months. It means that half of an interest amount (33.12 EUR) was covered already. In this situation, the user doesn’t pay extra interest, since 33.12 EUR exceeds 50% of the total interest amount.
A borrower makes a prepayment before the first payment deadline comes. In this case, the user pays 33.1 EUR (66.2 * 0.5), which is half of the total interest amount.
Suppose a borrower made two payments in the schedule and repaid 11.04 EUR of interest (5.52 * 2). To make a prepayment at this point, the user needs to pay an extra 22.06 EUR (33.1 - 11.04), which means the remaining amount of the 50% interest amount.
We hope that our new prepayment policy will satisfy both parties.