Prepayment penalty
A fee some lenders charge if you pay off the loan before the scheduled end of the term. Most U.S. personal loans do not have one.
Full definition
A prepayment penalty is a fee some lenders charge if you repay the loan ahead of schedule, compensating them for the interest they would otherwise have earned. Most reputable U.S. personal-loan lenders do not charge prepayment penalties, but always confirm in the loan agreement before signing. The federal CFPB requires disclosure of any prepayment penalty in the loan documents.
- Written by
- Get Advance Loan Editorial Team
- Reviewed by
- Compliance Review
- Published
- January 15, 2026
- Last reviewed
- May 22, 2026
- Installment loanA loan repaid in fixed monthly payments over a set term. Personal loans, auto loans, and mortgages are all installment loans.
- Revolving creditCredit you can repeatedly draw on up to a limit, with a minimum monthly payment based on the current balance. Credit cards and HELOCs are revolving.
- Late feeA fee charged when you don't make a loan payment by its due date. Typically $15 to $40 depending on the lender and state.
- DelinquencyMissing a scheduled payment by 30 days or more. Reported to credit bureaus and a major negative factor in credit scoring.
- DefaultFailure to repay a loan according to its terms. Usually declared after 90 to 120 days of missed payments, depending on lender and product.
- Charge-offAn accounting action a lender takes after concluding a debt is unlikely to be repaid. Doesn't erase the debt; it stays on your credit report.
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