Definition of Terms
Term
PREPAYMENT PENALTY
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This is a penalty levied on borrowers if they pay some / all of the principal amount before it is due to the lender. It is usually expressed as a percentage (%) of the amount pre-paid.
Some lenders do not charge a prepayment penalty if the amount prepaid is less than a specified percentage (say, 25%) of the outstanding principal amount.
Example: If outstanding principal amount is Rs. 15,00,000, prepayment penalty is 2% and the amount prepaid is Rs. 5,00,000, the borrower would have to pay a prepayment penalty of Rs. 10,000
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