Prepayment

Prepaying a debt or installment loan means paying it off before the date it is formally due. A prepayment is when an account is closed early because a bill, an operational expense, or a non-operating expense has been paid. An individual, a corporation, or any other kind of organization can make a prepayment.

Through prepayment, a variety of debts and responsibilities are settled in advance. Rent, salaries, revolving lines of credit, and other short- or long-term financial obligations may be paid in advance by corporations.

Consumers can prepay credit card charges before they ever receive a statement. Or they could pay off a loan early by refinancing it with a different lender or by settling the entire bill themselves.

Mortgages are one type of loan that may have a prepayment penalty. If there is such a penalty, it must be disclosed to and accepted by the borrowers at the time the loan is obtained.