Application of Prepayment Sum Clause Samples

The 'Application of Prepayment Sum' clause defines how any prepayments made by a party are to be allocated or used under the terms of the agreement. Typically, this clause specifies whether prepayments are applied to principal, interest, fees, or other outstanding amounts, and in what order. For example, if a borrower makes an early payment, the clause will clarify whether that amount reduces the principal balance or is first used to cover accrued interest or fees. Its core function is to ensure transparency and prevent disputes by clearly outlining how prepayments affect the parties' financial obligations.