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Pre-payment penalty

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If a loan has a pre-payment penalty attached to it, would it still be viable to retire it? Why or why not?

Is it better to retire all loans much before their term? Explain your answer.

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It explains the concept of pre-payment penalty

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If a loan has a pre-payment penalty attached to it, would it still be viable to retire it? Why or why not?

The payment of a debt obligation prior to its due date. A prepayment penalty is a provision of your contract with the lender that states that in the event you pay off the loan entirely, you will pay a penalty. Penalties are usually expressed as a percent of the outstanding balance at time of prepayment, or a specified number of months of interest.

Usually, prepayment penalties decline or disappear with the passage of time. Seldom do they apply after the fifth year. Partial prepayments of up to 20% of the balance usually are allowed in any one-year without a penalty. A penalty that applies to a home sale as well as a refinancing, is a "hard" penalty; if it applies only to a refinancing, it is a "soft" penalty.
Prime borrowers can usually get a better interest rate if they accept a prepayment penalty. Lenders, and the investors, who buy loans from lenders in ...

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