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MIAMI A
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LSDefine
Simple English definitions for legal terms
prepayment clause
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A quick definition of prepayment clause:
A prepayment clause is a part of a loan agreement that allows the borrower to pay off the debt before the due date without any penalty. This means that the borrower can save money by paying off the loan early.
A more thorough explanation:
A prepayment clause is a provision in a loan document that allows a borrower to pay off a debt before its due date without any penalty. This means that the borrower can pay back the loan early without having to pay extra fees or charges.
John took out a loan to buy a car. The loan agreement had a prepayment clause that allowed him to pay off the loan early if he wanted to. After a few months, John received a bonus at work and decided to pay off the loan in full. Because of the prepayment clause, he was able to do so without any penalty.
The example illustrates how a prepayment clause can benefit a borrower by giving them the flexibility to pay off their debt early without any additional costs.