. Paying Off Your Debts Early: The Benefits of Prepayment
What are prepayment terms?
Prepayment terms are the conditions under which a borrower is allowed to prepay a loan. Typically, these terms will allow for a certain amount of prepayment without penalty, and then may charge a fee for any prepayment made after that. It is important to review the prepayment terms of a loan before signing any agreement, so that you are aware of any potential fees that may be charged. Which term means to pay off a debt gradually? The term "amortization" means to pay off a debt gradually.
What are the types of prepayment?
Prepayment is the early repayment of a loan by a borrower, in part or in full. There are a few different types of prepayment, which can be classified according to the method of prepayment or the reason for prepayment.
1. Prepayment by extra payment: The borrower makes additional payments on top of their regular monthly payments in order to pay off the loan sooner.
2. Prepayment by lump sum: The borrower makes a one-time payment to pay off a portion of the loan.
3. Prepayment by refinancing: The borrower takes out a new loan with a lower interest rate and uses the proceeds to pay off the old loan.
4. Prepayment by sale of property: The borrower sells the property that was used as collateral for the loan and uses the proceeds to pay off the loan.
5. Prepayment by insurance: The borrower uses insurance proceeds to pay off the loan.
6. Prepayment by inheritance: The borrower uses inheritance funds to pay off the loan.