Question

18. What is the term used for unscheduled full or partial payment of the principal amount outstanding on a loan before its due date?

Answer 1

Answer:

Explanation:

Prepayment is the term used to describe unscheduled repayment of debts either partially or in full before their due date. Prepayment is also the payments of bills such as utilities, invoices and other operating expenses in advance. Extra payments on top of the regular monthly repayment amount is also a prepayment.

Corporates and individuals make prepayments to save on payable interests. Debts, especially short term facilities such as credit cards and overdrafts, attract high-interest rates. The longer they remain unsettled, the more interest will be paid. Making prepayments saves from spending huge amounts on interest.  

Prepayments help improve credit score.  An improved credit score qualifies an individual or a business to borrow at low-interest rates.