Accelerated payments represent an extra unarranged payment on a loan at established or irregular terms. It is a case when a borrower needs to make a payment on a loan faster than he/she had to because there is a possibility he/she would not manage to do it later. It also could be a personal desire to pay off a loan rapidly.
Accelerated payments have virtues for both the borrower and the lender. That type of payment may help a company to extenuate accounting payment costs at commercial deals. Giving extra unscheduled payments the borrower can decrease the principal amount of loan, which will reduce the interest in following payments.
The major part of non-revolving loans has an amortization schedule with an amount of money which should be paid as principal and the interest on every single payment. The lender calculates it in the way to get the entire loan repaid by the end of the established period. The schedule establishes that each month the borrower makes the payment with a different amount of interest and principal so that each time the interest on the loan can decrease.
Accelerated payments will be more beneficial for those whose loan interest rate is higher. The lender calculates the amount of interest upon the outstanding loan balance, not from its total amount.
The borrower interested in early repayment of the loan should search for a lender who allows such an option. There are cases when lenders forbid accelerated payments. In these cases, special prepayment penalties based on which a person can be fined for early payment are inserted. These fines involve a tax for ahead-of-schedule payment over an established limit. The lenders may impose such payment fines on each kind of loan.
Sometimes there may be special rules of accelerated payments for mortgage lending. The lender may set the limit on the annual payment on the loan. As a rule, the borrower can pay up to 20% of the loan amount per annum.