More on prepayment penalty
To continue with yesterday’s post, why would anyone want a loan with a prepayment penalty?
Most B-Paper loans for those who do not have good credit will likely have a prepayment penalty. For taking a higher credit risk, the terms offered by lenders are understandably more costly.
Loans may also have a prepayment penalty clause for giving a lower interest rate.
Most loans have an option to buy out the prepayment penalty at the time you obtain the loan. You can pay upfront fees or a higher interest rate to remove the prepayment penalty clause. That way, if you do sell, refinance, or make extra payments to pay off the loan more quickly, you would not incur that prepayment cost.