In what case can lenders charge prepayment penalties?

Lenders can charge prepayment penalties if it is clearly stated in the loan documents. This means that the terms of the loan must specifically outline the conditions under which a prepayment penalty would be applicable. Such charges are generally included in the agreement to protect the lender's investment, particularly in scenarios where they may lose interest income due to early repayment by the borrower.

The inclusion of this clause ensures transparency for the borrower, who is made aware of any potential penalties associated with paying off the loan early. It is important for borrowers to read and understand all terms in their loan documents, as this can significantly impact their financial decisions down the line.

While other options may reflect scenarios that can influence whether prepayment penalties are appropriate, they do not address the essential requirement that the terms must be explicitly stated in the loan documents for penalties to be enforceable.