Prepayment Fee

Prepayment Fee refers to a compensatory fee charged by the lender to the borrower when the borrower repays all or part of the principal ahead of schedule in foreign trade financing or loan contracts. Its purpose is to compensate the lender for the expected interest income lost and reinvestment risk due to the early recovery of funds. It is commonly seen in export credit, forfaiting, factoring, buyer's credit, etc. Usage scenarios include: exporters who obtain seller's credit wish to prepay due to sufficient funds or exchange rate changes; importers prepay under buyer's credit. Notes: This fee is usually explicitly stipulated in the loan agreement, and may be calculated as a certain percentage of the prepayment amount (e.g., 1%-3%) or based on the interest for the remaining term; some contracts have a lock-up period during which prepayment is prohibited or a higher fee is charged. It is similar to 'prepayment penalty,' but 'penalty' emphasizes punitiveness, while 'fee' is more neutral. It differs from 'commitment fee,' which is charged on the undrawn loan amount. Foreign trade practitioners should carefully review prepayment terms before signing contracts, evaluate financing costs, and avoid additional expenses due to prepayment.