Published: | Updated: May 14, 2018

Definition - What does Prepayment mean?

Prepayment refers to settling an account or paying money for a service or product before the due date. Insurance can be prepaid by paying the premium before the start of coverage.

It is also called payment in advance.

Insuranceopedia explains Prepayment

Prepayments can either be full (the entire amount owed is paid in advance) or partial (only a portion of the amount owed is paid).

While generally good for the borrower, there are situations in which prepayment might be discouraged or even penalized because it reduces the amount the lender can make from interest.

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