Definition - What does Prepayment mean?

Prepayment is when a borrower makes a payment on an amount that is owed before the actual due date of the payment. Prepayments can pay a debt in full or in part. Prepayments can be made on many different types of debt such as mortgages, student loans, credit card debt, car payments, etc.

Justipedia explains Prepayment

An example of a prepayment would be a man who pays $2,000.00 on his student loans when he only owes $300.00 for the month. In this circumstance, the man would save on accumulated interest, and his principal balance would go down faster than it would if he were paying only the amount due each month. If the man only had $2,000.00 left of total debt left to pay, then his entire debt would be repaid.

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