Prepayment Definition: A prepayment is an advance payment towards a loan or mortgage balance, usually paid off in monthly installments. This type of payment may incur a penalty if it applies to a mortgage or loan with several payments remaining, though not all loan agreements incur fees or charges.
This settlement is also an accounting term for a service or product paid for in advance before receiving the benefit or physical asset. Prepayments can apply to several items, including utilities, equipment, and more.
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