What is a prepayment penalty?
Prepayment penalty: A prepayment penalty is a fee some lenders charge if you pay off a loan early or pay down a large part of it ahead of schedule.
Lenders earn interest over the life of a loan, so some charge a fee to make up for interest they lose when a loan is repaid early. Many personal loans have no prepayment penalty, but terms vary by lender and loan type.
Where a penalty applies, the loan agreement explains how it is calculated and whether it ends after a certain period.
When you compare offers
If you expect to pay a loan off early, check the loan agreement for a prepayment penalty before you accept an offer.
Related guides
- What to Check Before Comparing Personal Loan Offers
A checklist of what to have ready before comparing personal loan offers, plus how prequalifying with Lendara is designed to use a soft pull.
- Comparing Offers: APR, Fees and Term
A plain-language guide to the three numbers that matter most when comparing loan or credit offers — APR, fees and term length.
This glossary is for general educational purposes and isn't financial, legal or insurance advice. Lendara is not a lender and does not make credit decisions. Lendara is a free online marketplace that connects you with participating lenders and providers, who set their own eligibility rules, rates, fees and terms. Lendara may receive compensation from partners, which may affect which offers appear and their order.