Loans in Rhode Island may contain a prepayment penalty up to what percentage of the loan balance?

In Rhode Island, loans may include a prepayment penalty of up to 2% of the outstanding loan balance. This type of penalty is designed to compensate lenders for the potential loss of interest income that may occur if a borrower pays off their loan early. The 2% limit aligns with regulations that aim to protect consumers by preventing excessively punitive penalties that could arise from early repayment. By setting a cap on the penalty, the law seeks to promote borrower flexibility while still allowing lenders to mitigate their risk. Understanding this regulation is essential for loan officers operating in Rhode Island, as it impacts how they communicate loan terms to clients and ensures compliance with state laws.