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Loan Partial Payment vs Bank Loan option


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Hello everyone. I took a loan in Feb 2015 for $24000 (with interests $32,738.92) for my marriage and home expenses. I get $83.28 deducted from my paycheck bi-weekly. I will extinguish my loan in Feb 2030. Are there any types of option that would allow me to make partial payments so I can close this loan sooner? I have left $21,225.45 to left to pay off and I hate the idea that I can't make partial payments, especially when I know that the interest for this loan is $8,738.92 . If there are no options, I though about going to my bank (Global Credit Union) and ask for a loan for the amount required and try to see if I can eventually payback the new loan with bi-weekly or monthly deductions from my account or paycheck, and be able to make partial payments along the time frame. If this is possible, would this be a good a idea? I apologize for my way of expressing myself. I hope I made this case easy and simple to understand. Thank you

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This is really a question for you HR department and/or the recordkeeper that handles your plan.  Many (most?) recordkeepers don't accept partial payments because their systems don't easily track the change in principle/interest that occurs when that happens.  Some allow for partial payments in an exact multiple of your payment amount - but all that does is actually advance you x number of payments on your amortization schedule.  Others may be able to handle partial payments.

I think if you want flexibility, you best option is to secure the funds elsewhere and pay off your plan loan in its entirety.

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Is this a good idea?  Likely, that question cannot be answered here, but some considerations that might be relevant:

-  what is the interest rate differential of keeping the loan vs. borrowing elsewhere?

- what is the likelihood that you will remain with this employer until the loan is paid off in 2030?

- what are the provisions for extinguishing the loan if you leave employment? (Likely, your loan agreement already spells this out.)

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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If you can make regular and fixed increase payments on the plan loan you MIGHT be able to refinance the loan to a shorter period of time.  But you are then locked into the new loan terms.  You will most likely not be able to go back to the old terms.  There may be a cost. 

But if what you want is random extra payments that is most likely not going to happen with a plan loan.  Retirement plans offer loans but that is not their main purpose/business so they aren't going to have the features of a bank. 

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I want to thank you all for taking the time to respond to me. I believe all your answers are correct and I'm going to take advise from it. I'm also going to call Benefits and ask them few questions in regard my case even though I believe for sure I'm not eligible for a partial prepayments for my loan.

here is the explanation which defines the options for loan payments

I copy and paste it form the website 

What is the payoff amount and process for paying off my loan?
Based on your plan's provisions you may be able to payoff your loan in full before your original loan term. If your plan allows you to payoff your loan in full before the original loan term you will see a "Pay Off Loan" link on the Loans page in NetBenefits . Click Pay Off Loan to view your payoff amount and to find information about how to pay off your loan online.

Your payoff amount may include principal and interest. Payoff amounts may require additional payroll deductions.

Additionally, some plans offer the ability to make partial payments. Partial payments will be applied to the outstanding loan balance including interest. Partial payments may NOT be used to prepay loan payments - i.e., you may not send one lump amount to cover the next five payments. Loan payments will continue to be due based on the loan agreement. If your plan allows, you can click the "Make an Additional Payment" link on the Loans page in NetBenefits to get information on how to submit a partial payment.

 

Here is the agreement that I signed for the loan request:

 

YOUR AGREEMENT

 

•           Agree to take full responsibility for ensuring that all loan payments are made on time, repaying both the loan amount and the finance charge itemized above.

•           Agree to repay this loan via payroll deduction if you had a defaulted, unpaid loan balance when this loan request was initiated.

•           Understand that if you request a full payout, the unpaid loan balance will be included in the calculation of your tax liability.  Note: The outstanding loan balance may be declared a distribution to you, which is a taxable event.

•           Understand that if your employment with your current employer ends, either of the following could occur:

– The Plan could require you to immediately pay the full amount due (including any unpaid interest).

– Your loan could go into default.

•           Understand that, if this loan goes into default (whether because you failed to make payments or your employment ended), any of the following could occur:

– The unpaid loan balance continues to accrue interest.

– The terms or availability of future loans from your Plan are affected.

 

 
Any exchanges or withdrawals made within your retirement plan after your Loan request and before the Amount Financed is paid to you may cause the Loan transaction to be rejected.

 

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  • 6 years later...

Loan partial payments allow you to pay extra towards your existing loan, reducing the total interest you pay and potentially shortening the loan term. This is different from taking a new bank loan, which would have its own terms and interest rate. Partial payments are a good option if you have extra cash and want to save on your current loan, but they won't necessarily give you access to new funds. Please share more of that type of post, visit us for more details.

06/03/24 Moderator edit: removed advertising link.
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