A prepayment penalty is a fee charged by a lender for paying off a loan early — typically a percentage of the remaining balance or a defined number of months of interest. Most consumer loans no longer carry prepayment penalties under federal Truth in Lending Act standards.
Prepayment penalties protected the lender's expected interest revenue when a borrower paid off a loan before maturity. Federal law (Dodd-Frank Act, 2010) banned prepayment penalties on most consumer mortgages and severely restricted them on other consumer loans. Today, virtually no major personal-loan, auto-loan, or mortgage lender in this guide's coverage charges prepayment penalties. Where prepayment penalties still appear: some commercial loans (SBA 7(a) loans have a 3-year declining prepayment penalty for terms >15 years), some bank business loans, certain MCAs (rare — most MCAs have factor-rate-fixed payback regardless of speed). Always check the loan agreement BEFORE signing. The relevant TILA disclosure is the 'Prepayment Penalty' box in the Loan Estimate or Closing Disclosure. If the box is checked 'Yes,' read the fine print carefully — paying the loan off in year 1-3 might cost significantly more than the loan agreement's headline rate suggests. The CFPB's mortgage regulations (12 CFR Part 1026 — https://www.consumerfinance.gov/rules-policy/regulations/1026/) govern prepayment penalty restrictions on qualified mortgages. The SBA SOP 50 10 (https://www.sba.gov/document/sop-50-10-lender-development-company-loan-programs) defines the specific declining prepayment penalty schedule for SBA 7(a) loans with terms over 15 years.
Generally no — none of the major personal-loan lenders in the U.S. market (SoFi, LightStream, Marcus, Discover, Best Egg, Upgrade, Upstart, OneMain) charge prepayment penalties. Always verify in the specific loan agreement before signing, but the modern personal-loan market is uniformly prepayment-friendly.
SBA 7(a) loans with terms over 15 years carry a 3-year declining prepayment penalty: 5% of the prepaid amount in year 1, 3% in year 2, 1% in year 3, $0 thereafter. SBA 504 loans have prepayment penalty for the first 10 years of the 20-25 year CDC portion. The bank-funded 50% portion of a 504 typically has no prepayment penalty after a defined window.