Glossary
What is Prepayment Penalty?
A prepayment penalty is a fee a lender charges if you pay off a loan, or part of it, before the scheduled maturity. Lenders use these fees to recover interest they expected to earn. Penalties may be a percentage of the balance, decline over time, or apply only during early years. Some loans, particularly longer-term SBA loans, can carry prepayment fees in early years. Always ask about prepayment terms before signing, especially if you may refinance or sell.
Example
A real estate loan charges a declining prepayment fee if paid off within the first several years.
Related funding
Term Loans: A lump sum with fixed payments for big, planned moves.
Related terms
Questions about an offer? Your advisor will explain every term.