1. What is a Loan Prepayment Fee?

A prepayment fee is a charge imposed by lenders when borrowers pay off a loan before its scheduled maturity date. This compensates lenders for potential lost interest income (e.g., HDFC may charge up to 4% on prepaid amount).

2. How Does the Calculator Work?

The calculator uses the prepayment fee formula:

Where:

• \( P \) — Prepaid amount (USD)
• \( fee\_rate \) — Prepayment fee percentage (decimal)
• \( Fee \) — Prepayment fee (USD)

Explanation: The fee is calculated by multiplying the prepaid amount by the lender's specified prepayment fee rate.

3. Importance of Prepayment Fee Calculation

Details: Understanding prepayment fees helps borrowers make informed decisions about early loan repayment and evaluate the true cost of paying off loans ahead of schedule.

4. Using the Calculator

Tips: Enter the amount you plan to prepay in USD and the lender's prepayment fee rate as a percentage. All values must be valid (amount > 0, fee rate ≥ 0).

5. Frequently Asked Questions (FAQ)

Q1: Why do lenders charge prepayment fees?
A: Lenders charge these fees to compensate for the interest income they lose when loans are paid off early.

Q2: Are prepayment fees always charged?
A: Not always. Some loans have no prepayment penalties, while others may have them only during certain periods.

Q3: How are prepayment fees typically structured?
A: They may be a percentage of the prepaid amount, a certain number of months' interest, or a flat fee.

Q4: Are there legal limits on prepayment fees?
A: Yes, many jurisdictions regulate prepayment penalties, with limits on amounts and when they can be charged.

Q5: Can prepayment fees be negotiated?
A: Sometimes, especially for commercial loans. It's worth discussing with your lender before signing the loan agreement.