What is often a consequence of loan flipping?

Loan flipping is a practice where a lender persuades a borrower to refinance a loan repeatedly, often within a short period, which does not significantly benefit the borrower. One of the main consequences of this practice is the accumulation of fees and prepayment penalties. Each time a loan is refinanced, the borrower incurs new closing costs and may also have to pay penalties for paying off the existing loan early. This can lead to a situation where the borrower ends up with a larger debt burden, as the costs associated with refinancing are often added to the principal amount of the new loan.

In contrast, reducing the principal amount owed typically occurs when a borrower makes payments that lower their debt over time, which is not a common outcome of loan flipping. While interest rates might vary based on loans, loan flipping generally focuses more on fees than a straightforward increase in interest rates. Additionally, while repeated refinancing can affect a borrower's credit profile, particularly through increased debt levels or high credit utilization, the more immediate and direct consequence of loan flipping is the increase in fees and penalties incurred, making the correct answer the accumulation of fees and prepayment penalties.