DEFINITION of 'Prepayment'

The satisfaction of a debt or installment payment before its official due date. A prepayment can be for the entire balance or for any upcoming payment that is paid in advance of the date for which the borrower is contractually obligated to pay it. Examples of a prepayment come in the form of rent or early loan repayments.

BREAKING DOWN 'Prepayment'

There are many types of debts and obligations that can be settled in advance through prepayment. Consumers can use prepayments on tax forms to settle future tax obligations, they may prepay credit card charges before they receive a statement and sometimes many prepay loans through refinancing. It's always a good idea to make sure that prepayment is allowed without penalty for mortgages, or, if there is a penalty that it's only for a few years.

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