But my point on that is the terms of the loans DO NOT make it clear that prepayments DO NOT have an impact on the calculation of interest. So, by default, people who prepay are overpaying if you are not adjusting the total amount they pay.
No, they are not overpaying as the natural interest of the deflationary bitcoin is negative. Before even being compensated for the time value of money I need to charge 33% risk premium just to cope with the 25% default risk on this site. I understand you don't want to pay interest over money not owed, but otoh it is also common to pay a fee for early redemption.
Most consumer loans do not have an early payment penalty nowadays, but if it is agreed to in advance it can apply. However, it is not on BTCJam. In simple math, they are overpaying until there are terms that expressly state prepayment is not allowed. Your other points are valid from a risk management perspective, but not from an actual agreed upon terms perspective. I have contacted the owner of BTCJam several times with my straight calculations showing the overpayment that is occurring, yet the loan terms still allow this. It is especially important in the terms of my loan which was 2% every 7 days for 90 days for an 11 BTC Loan. I made substantial payments in the beginning reducing the principal available for the interest rate calculation, yet I still end up paying the same as if I held on to the money longer. That runs contrary to the fact their is interest and was not expressly stated at the outset. By my calculations, I have already overpaid, but BTCJam has one more payment left. However, all lenders have had their money back earlier than had I held on to it, and could have invested in other loans.
Fact is, BTCJam is doing a poor job on defining its loan terms which will lead to issues if it ever tries to become reputable and force collections on defaults. There are a reason there are a lot of terms on normal consumer loans, including credit cars and other short-term loans are more than a paragraph. If BTCJam cares at all about collectability, it will emulate a lot of what sites like Prosper.com has done (including putting together a formalized promissory note like the one at
http://www.prosper.com/legal/promissory-note-sample/). Right now, it seems to encourage poor behavior and the owner feigns ignorance. Rant done.
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