prepayment penalty

plural prepayment penalties · alternative pre-payment penalty

1. An additional fee charged for paying off part of or the entirety of a loan ahead of the scheduled due date in order to compensate for the loss of interest income suffered by the creditor in such case.

   Prepayment penalties can be viewed as a necessary supplement to the escalating-payments feature: If borrowers prepay before the end of the low-rate introductory period and thus avoid the high post-reset rates, then the escalating-payments feature becomes moot.

   2012, Oren Bar-Gill, Seduction by Contract