A prepayment penalty is a fee charged when you pay off a loan ahead of schedule — either with a lump sum or by refinancing. It exists to protect the lender's expected interest revenue.
Where you'll see them (and where you won't)
Most major US personal-loan lenders — SoFi, LightStream, Marcus, Upstart, Upgrade — explicitly advertise no prepayment penalty. Some mortgage products, certain auto loans, and small-business loans still carry them. Always check the loan agreement under 'Prepayment' before signing.
Typical structures
Flat fee (e.g., $500), percentage of remaining balance (1%–2%), or a sliding scale that decreases over time. Some 'soft' prepayment penalties apply only to a refinance, not to extra principal payments.
Frequently asked questions
Can I make extra payments without triggering a penalty?
Usually yes, even when a penalty exists for full payoff. But always confirm — the rules are in your loan agreement.