A person who has taken a simple interest boat loan may want to repay the loan before the end of the loan period. For instance, say a person has taken a boat loan of $75,000 with a repayment period of 10 years. After regularly making loan payments for five years, he is now in a position to pay off the balance in a lump sum. He may ask – “Can I pay off a simple interest boat loan early?” If he wants to make an early payment, he would have to keep the following things in mind:
He should check if the loan contract mentions that a penalty will be imposed in case of prepayment. If it does contain such a clause, he can pay back the loan early but will also have to pay prepayment penalty. In fact, it is advisable that a person clarifies this point at the time of taking the loan.
A person has to pay interest only for the time he has taken the loan. In the above example, simple interest of five years should have been paid. If he prepays the loan immediately after five years, he would have to pay only the pending principal amount and does not have to pay any interest.
The lender may prefer to be given a few days notice of loan prepayment by the borrower. Generally, a notice of 10 days is considered sufficient.
So a person who has the money to pay off a simple interest boat loan can retire the loan by paying the pending loan amount.