Meaning
This penalty applies when a loan is repaid ahead of schedule.Definition
An Early Redemption Penalty is a charge from a lender when a borrower pays off a loan or mortgage before its agreed maturity date. It compensates the lender for potential lost interest.How It Works
Typically calculated as a percentage of the outstanding principal balance or a fixed fee, as detailed in the loan agreement.Purpose
It protects lenders from financial losses due to early loan settlement, discouraging premature refinancing and ensuring expected interest earnings.Author
