prepayment penalty |
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Definition
Additional fee imposed by some loan agreements where a borrower retires a loan before its scheduled pay-off date. It is meant to compensate the lender for not realizing the anticipated interest income and for the possibility of reinvesting the loan amount at a lower interest rate. Prepayment penalty is usually equivalent to three months of interest on the loan. Also called breakage cost.
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prepayment penalty is in the Banking, Commerce & Finance subject.
prepayment penalty appears in the definitions of the following terms: breakage cost and prepayment clause
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