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Beware The Ball And Chain

. . . of a loan: avoiding prepayment penalties.

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This story appears in the March 2001 issue of Entrepreneur. Subscribe »

Q: I've been approved for a loan to refinance my company's building. I called my lender for a final loan balance, and he reminded me that my loan had a prepayment penalty. After considering the rollover of the prepayment penalty into the new loan, the difference in terms and monthly payment was too close to bother refinancing. Can I do anything to have the prepayment forgiven or reduced?

A: It's likely too late in the game to negotiate. Forgiveness isn't a word I associate with banking, especially where prepayment penalties are concerned. By definition, a prepayment penalty is a fee a borrower agrees to pay if he or she pays the loan balance prior to its maturity date. It exists to protect the lender's profit margin.

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