Are there Pre-Payment Penalties for Credit Cards?

There are not typically prepayment penalties on credit cards. Most credit cards are issued as revolving debts. This means the borrower has a lot of flexibility in deciding when to pay down a balance. As long as monthly payment obligations are met, the borrower can hold or pay off a balance at any point.

Prepayment Fees on Installment Loans

Installment loans typically do have prepayment penalties. In an installment loan, a principal sum is distributed at the beginning. An interest rate is charged on that sum. Each month, a payment goes first to cover interest and then to cover the principal. Installment loans are structured so the highest interest charges come at the beginning of the loan, meaning the principal is rarely reduced in the first few years of the debt. The borrower has to repay a huge amount of the principal in the form of a prepayment penalty all at once. 

Unsuspected Credit Card Fees

While revolving debts do not have prepayment fees, they do have other costly fees. Allowing a debt to revolve month-to-month means interest will be charged on the interest assessed the previous month. Principal sums are also charged for interest at each period. The cost of revolving debt, then, is generally higher.


Improve Your Credit Score - Free Consultation