A provision in loan agreements that allows the borrower to prepay all or a portion of the outstanding loans at any time before maturity. In some loan agreements optional prepayments may be subject to a prepayment penalty.

This is in contrast to mandatory prepayments, which are often required in leveraged loan agreements on a change of control and with proceeds of asset dispositions, equity issuances, incurrence of debt, excess cash flow, and extraordinary receipts (such as insurance proceeds).

For more information on prepayment provisions, see Practice Note, Loan Agreement: Prepayment and Commitment Reduction Provisions and Standard Clauses, Loan Agreement: Prepayment and Commitment Reduction Provisions.