Debt is money that was borrowed from a person or business that you are required to pay back with set guidelines. Prepayment and refinancing are two ways to pay off one's debt.
Prepayment
Prepayment is paying some or all of your debt before it is due. This reduces the principal amount of the loan.
Refinancing
In refinancing, you pay off existing debt with a new loan for the same amount. This often involves using the same collateral that was used before. Sometimes refinancing fees must be paid up front.
The Choice
Whether to choose prepayment or refinancing depends on your situation and your goals. If your goal is to eliminate the debt sooner, and you have money you can devote to this purpose, prepayment will help you reach that goal. If you want to reduce your monthly payment, refinancing a loan at a lower interest rate or for a longer term will accomplish this.
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