AM I ALLOWED TO PAY MY LOAN BEFORE THE AGREED TIME?.

📸: Unsplash.

Last week, God finally smiled at Kyobe. He bet on 7 football matches and guessed the correct scores and winners of all of them. He won 32 million, and being the ‘responsible’ person he is, he hurried to his bank Kafufu Bank LTD, on Monday to pay back the loan of 13 million he got in August. To his surprise, the bank refused to take the exact amount that was the balance and insisted that he keep paying slowly until next year as agreed. Kyobe is tired of that loan and wants to know if he is not allowed to repay his loan earlier than agreed.

WHAT DOES THE LAW SAY?

According to the law, people are allowed to make any contract between themselves as long as it is not for something illegal, and the law or government will not interfere with them. This includes things such as getting loans and borrowing money.

When a bank gives someone a loan, they plan to make a profit on that loan through interest (a certain amount of money a person pays to the bank on top of what they borrowed). So, the bank knows how much interest they will get because they agree with a person about how much the person will pay and at what time they should have paid this money. For example, if you pay interest of UGX.200,000 every month for 2 years, it means the bank will make a profit of UGX. 4.8 million, so if you pay back the money in 12 months, the bank will only get interest of UGX 2.4 million.

Before October 13th, 2023, banks were allowed to ‘fine’ you for paying your loan early because they would have made less money than they planned from your loan. However, the body that governs all banks (the Uganda Bankers’ Association (UBA)) decided that banks should not ask their customers to pay this fine anymore. That means that if you pay your loan before the agreed time, then you will not have to pay any fines or penalty fees, and you can claim for your ‘security for the loan’ and live your life.

Source: BarefootLawyers.

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