What is a penalty imposed by a financial institution for early loan termination often referred to?

A penalty imposed by a financial institution for early loan termination is referred to as a prepayment penalty. This type of penalty is designed to compensate the lender for the loss of expected interest income that occurs when a borrower pays off their loan before the end of the agreed-upon term. It serves as a deterrent against refinancing or paying off loans early, ensuring that lenders receive a certain level of return on their investment.

In contrast, a default penalty typically pertains to penalties imposed when a borrower fails to make their scheduled payments. A late fee is a charge for payments made after the due date, while a service charge may refer to various types of fees associated with account maintenance or specific transactions but does not specifically address early loan termination.