What is the term for a fee charged when a borrower repays a loan early?

The term for a fee charged when a borrower repays a loan early is a prepayment penalty. This fee is imposed by lenders as a way to protect their anticipated earnings from the interest that would have been collected over the full term of the loan. When a borrower repays the loan early, they may be reducing the interest income that the lender was expecting.

Prepayment penalties vary in structure and can be a flat fee or a percentage of the remaining loan balance. Some loans may not have such penalties, as this is more commonly associated with certain types of loans, such as subprime mortgages or fixed-rate loans. Understanding prepayment penalties is essential for borrowers deciding whether to refinance or pay off their loans early, as it can affect the overall financial implications of their decisions.

The other options refer to different types of fees involved in the lending process. Late payment fees apply when a borrower does not make their payment on time, the loan origination fee is charged for processing a new loan, and the application fee is associated with the costs incurred in assessing a borrower’s application for a loan. None of these fees relate to the action of paying off a loan earlier than agreed.