Unearned Interest
What is an unearned interest?
Unearned concern is a term that is used to believe the amount of interest that is collected on a loan before the borrower has had enough time to benefit from the principal of the loan. This will often follow a pattern of each monthly payment going toward the interest that is anticipated to apply to the loan over the series of payments specified. Allowing to this approach, the borrower does not receive the full benefit of the loan until the acquired property is no longer encumbered by the mortgage or terms of the loan agreement.
More commonly, lending institutions tend to structure the accrual of unearned interest in a way that will not require refunding interest to the borrower. Prepaid interest received but not treated as income by a lender. For example, installment loans often result in unearned interest that must be returned to the borrower if the loan is repaid early. This will often follow a pattern of each monthly payment going toward the interest that is anticipated to apply to the loan over the series of payments specified.
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