Participant Loan Pre Payment

[Guest LKeener]

Participant wants to pay $25,000 on a $37,000 loan. The loan is current. Can the payment be applied to P & I as provided by the amort schedule? I seem to remember something somewhere that stated interest cannot be prepaid. However, in researching this, I could find nothing to support this statement.

[QDROphile]

The loan terms should cover prepayment. If they do not, the provider of loan documents is incompetent. It is common to allow prepayment, but only if the entire balance is prepaid. I think there is some limitation on absolute prevention of prepayment, but I am not sure it applies in plan loan context.

[masteff]

Can the payment be applied to P & I as provided by the amort schedule? I seem to remember something somewhere that stated interest cannot be prepaid.

To me it's simply definitional of "level amortization". Each payment is applied first to accrued interest and then to principle. So you'd only apply it to as much interest as is due for the next regular payment.

[K2retire]

Can the payment be applied to P & I as provided by the amort schedule? I seem to remember something somewhere that stated interest cannot be prepaid.

To me it's simply definitional of "level amortization". Each payment is applied first to accrued interest and then to principle. So you'd only apply it to as much interest as is due for the next regular payment.

That's the way most banks would do it too.