early repayment
Also called: prepayment
Paying off debt ahead of schedule, usually with certain fees.
What it means
Early repayment is paying off the remaining loan earlier than the agreed schedule. Usually what is paid is the remaining loan principal plus certain fees according to the credit agreement. This practice is common for home loans and vehicle loans.
Why it matters for families
This step can save interest that would otherwise be paid until the end of the tenor. However, families need to check whether there is an early repayment fee and ensure the emergency fund remains safe. Misunderstanding can make families use up all their savings with nothing left for urgent needs.
Example
For example, the remaining loan principal is Rp150 million with eight years left in the tenor. If paid off early, the family can save interest for the coming years, but must pay fees according to the agreement. The decision should be calculated after the emergency fund is met.
Common misunderstanding
It is often assumed that early repayment is always free of fees. In reality, there may be fees according to the credit agreement, so it needs to be read before deciding.