Final Discharge

A final discharges refers to the final payment that a debtor would pay to complete the repayment cycle for the debt and be release from anymore obligations.

For secured loans such as a mortgage, it also triggers the outright transfer of property ownership to the owner without any liens or charges against the property.

The relationship between the lender and borrower comes to a close with all the terms of the contract enforced.

It must be noted that the final payment listed on a debt repayment schedule does not necessarily represent the final discharge.

This is because there might be deferred interest that has been accrued onto the loan balance and the final scheduled payment is insufficient to pay off all the outstanding balance.

For example, the principal balance might be $1,000 but the final scheduled payment is $800. As there would be $200 left on the account after the last scheduled payment, it cannot be the final discharge payment.

In this case, the lender might inform the borrower of the outstanding amount and request for payment before releasing him or her from the debt liability.

Should the borrower refuse to make payment towards the remaining balance, there is a always a possibility that interest would be charged on the amount when payment is not made after the due date.

Redemption and full repayment

When full repayment, or full redemption, is initiated by a borrower, the lender issues a statement indicating the full amount that has to be paid consisting of principal and interest in order to close the account.

This amount would be the final discharge as the borrower would be release for the debt as it would be fully settled after the payment has been made.

For example, if an auto loan has another 5 years to run with a balance of $50,000, then the final payment amount might be $50,000 plus any redemption penalty fees, plus any interest due. After payment has been paid and cleared, the car would not longer be in the books of the lender.

For accounts in delinquency or default, the calculation of final discharge might not be so straight forward as lenders can often waive certain charges or offer discounts so that the debtor would be able to more easily settle the outstanding debt.

This can especially be the case when the collections department is called into action.

As they’d want to collect whatever amount they can from debtors in financial trouble, they can often offer a debt settlement amount that is lower than what is actually due.

In this case, the borrower would make a final discharge payment to settle the debt, and be release from all debt obligations. The lender would then classify the case as settled.

This might seem favorable to a borrower on the surface. But the drawback for the borrower is that the settlement would be reflected in his or her credit report.

This would make it difficult for the individual to get any loans or credit cards approved in the near future as other banks and lenders would view such records adversely when conducting credit assessment.


Negative Amortization

Simple Interest

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