LENDING GLOSSARY
Prepayment Penalty
Prepayment Penalty
A contractual charge triggered by repaying debt before an allowed date.
What does Prepayment Penalty mean?
A contractual charge triggered by repaying debt before an allowed date. Professionals may calculate, document or apply this concept differently depending on the transaction, accounting method, lender policy and governing documents. Borrowers should confirm the precise definition used in any term sheet or agreement.
Prepayment Penalty in context
A borrower refinancing during a protected period may owe a stated percentage of principal.
Why it matters in financing
Prepayment Penalty can influence how a lender, investor or advisor evaluates risk, pricing, structure, repayment capacity or transaction economics. It should be considered together with the complete financial picture rather than used alone.
Related lending terms
Educational information only. This definition is general, may not match a particular lender or contract, and is not financial, accounting, tax or legal advice.