A loan has three phases
1
Active
From settlement to maturity. You pay the fixed rate you accepted, and nothing else applies.
2
Grace period
Starts at maturity. The loan stays open and nobody can force it closed, but the overdue rate is charged on top of your fixed rate for as long as it stays open. The length of the window is set in your quote.
3
Liquidatable
Once the grace period ends. Anyone can close your loan against your collateral, and takes a share of it as the incentive for doing so.
Reading it in your quote
The overdue rate is added to your fixed rate rather than replacing it. A loan quoted at 8% fixed with a 4% overdue rate accrues at 12% while it is past maturity.
Both terms are set by the quote, not fixed by the protocol. The overdue rate can be larger than your fixed rate, and the grace period is often short. A one-day grace period on a seven-day loan is normal, so read both before you settle.
The grace period gives you room to close after maturity. Once it ends, closing the loan is open to anyone.
Repaying early
You can close before maturity, but the fixed rate was agreed for the full term. You settle the full term’s interest whichever day you close, so an early repayment returns your collateral sooner without lowering the cost of the loan. That is worth knowing before you choose a duration. A twelve-month loan you plan to exit in three months costs twelve months of interest. If the position has already been through a solver liquidation, closing it is no longer a fixed-rate closeout. It is settling a floating-rate borrow on the venue.The practical rule
- Repay before maturity, or plan to close inside the grace period.
- Read both the overdue rate and the grace period in your quote before you settle. On a short loan the grace period can be a single day.
- The grace period is the last window where being late costs you nothing in collateral.