prepayment penalty

noun

Meaning

A fee charged by a lender when a borrower pays off a loan, such as a mortgage or car loan, before the scheduled maturity date.

Examples

  • The bank included a prepayment penalty in the loan agreement to protect their expected interest income.
  • She avoided a significant prepayment penalty by waiting until the fifth year of her mortgage to refinance.

Synonyms: exit fee, early repayment charge, redemption penalty