Loan Repayment Account
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A loan repayment account refers to an account that has be specially opened by a lender which a borrower has to make monthly payments to, and in turn the funds would be deducted by the bank.
In terms of deposits, a borrower would be able to deposit money into a loan repayment account by almost all manner of ways including:
- Cheque deposit
- Cash deposit
- Balance wire transfer
- Credit card
- TT transfer
Borrowers however would not be able to withdraw from loan repayment account unless special arrangements have been made and agreed by both parties.
This can sometimes occur with HELOC overdraft accounts.
In this case, the borrower uses the repayment account for both payment deposit and withdrawal.
However to encourage borrowers to keep their funds in the accounts, lenders can sometimes offer them as interest bearing accounts.
When more money than required is deposited into a regular loan repayment account, the extra funds can sometimes be deducted from the account and used towards the reduction of the principal loan balance.
However this is usually not a default setting of such accounts.
In order to avoid confusion, borrowers who want extra payments into the loan repayment account to go towards principal reduction should explicitly inform the bank about it.
Otherwise the extra funds would be left untouched and be kept as part of the payment for the following month.
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