Avoid Early Settlement Fees at Monexo

24 August, 2015

Do you require a loan, but aren’t sure how long you require it for? Think you’ll come into cash soon, and want to pay off your loan?

Monexo, a peer-to-peer lending marketplace, offers you unmatched transparency and clarity that most institutions don't. In this post, following an analysis of loan terms (fixed vs. floating, and flat vs. reducing balance), we continue our education of the masses, and take a look at some of the hidden fees that moneylenders in Hong Kong traditionally charge borrowers.

Most moneylenders around the world impose administrative or handling charges in the processing of one’s loan. Part of this package of hidden fees is early settlement fees, as well as late payment penalties. This particular post will focus on the early settlement fees (pre-payment fees) that borrowers are charged as they attempt to pay off their existing obligations in one go.

Why should borrowers be charged for settling their loans early?

Moneylenders often charge borrowers a penalty when they wish to fully repay their personal loan earlier than the agreed upon tenor. Eventually, lenders do miss out on the interest rate earnings that they would have earned had the borrower held the loan for the entire duration. With that being said, despite the fact that lenders miss out on their interest, they regain their principal outstanding, and can reinvest with other borrowers, for gains.

Conventionally, early settlement fees across moneylenders in Hong Kong tend to be between 2-4% charged on the outstanding loan balance at the time of the full settlement.
Graphical Illustration of Pre-Payment Fees

Let us now compare the financial effects of a loan settlement at Monexo, and at a traditional moneylender.

Option 1 – A loan at Monexo
• A loan for $300,000 for 48 months, at an annual interest rate of 12% on a reducing balance mechanism with no early settlement penalty. Your monthly payment is therefore $7,900.
• Assume you decide to repay your loan after the 24th month.
• At this point, your total payments are $189,600, your outstanding balance is $173,986, and the total interest you have paid to this point is $57,430.
• To completely repay the loan, you would need to pay off the entire outstanding balance. As such, the cost of your loan is only $57,430 which equates to the total interest paid.

Option 2 – A loan at XYZ
• A loan for $300,000 for 48 months, at an annual interest rate of 12% on a flat interest mechanism, with 4% early settlement penalty. Your monthly payment is therefore $9,250.
• Assume you decide to repay your loan after the 24th month.
• At this point, your total payments are $222,000, your outstanding balance is $156,250, and the total interest you have paid to this point is $72,000.
• To completely repay the loan, you would need to pay off the entire outstanding balance, plus 4% of the settlement penalty ($6,250). As such, the cost of your loan is a total of $78,250.
Illustration After 24 Months

Interestingly, some financial institutions and moneylenders in Hong Kong even charge borrowers the total interest payment, as they settle their dues early! In that case, the comparison is even starker.

It is therefore, evident that early settlement at Monexo is financially more cost effective than most other moneylenders in Hong Kong, seeing as Monexo doesn’t charge any early settlement fees.

Simply, why should borrowers be subject to fees and fines for paying off their dues?

Borrow Now at Monexo

Author: Sahil Mohnani @ Monexo