Q:

What is the maturity date on a loan?

A:

Quick Answer

A maturity date for a loan is when the original principal amount is due. The principal amount is generally the original amount agreed upon before extra fees.

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Full Answer

A maturity date is an important thing to keep in mind and to remember, since this is the date that the principal loan payments are due. There can be no additional payments on the principal loan after this. Interest has to stop accruing on the principal after this date, but any interest due on money before this date still has to be paid. For example, if there is $100 principal loan left until the maturity date, and interest is at 10 percent, then from this point to the maturity date, there will be $10 accrued interest. Even though the principal amount of $100 must be paid back by the maturity date, the $10 may be due a week later or on the same date. However, after this maturity date, interest cannot accrue on the loan or the interest due.

Some loans are payable early, and this usually is helpful to the payee of the loan, but not the lender. The lender loses money if someone pays off a loan before the maturity date since there is no money that can accrue interest. Usually to pay off a loan early, an early payment penalty or fee may be imposed, where the lender is able to recuperate some of the loss from what would have been income from interest.

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