Nearly every travel booking offers a cheaper rate for paying now and a dearer one for paying later. The gap is not a reward for loyalty; it is the price of the flexibility you gave up.
A refundable booking is an option the seller has written
When you hold a room or seat that you can cancel freely, the seller cannot sell that inventory to anyone else while still facing the possibility that you will not appear.
That is effectively an option, and options have value. The refundable rate is higher because it includes the cost of granting you one.
Prepaid rates remove the option, letting the seller treat the sale as final and plan capacity around it, which is worth paying you for.
Cash timing matters more than it looks
Money received months ahead of the stay funds operations in the meantime, which has real value to a business with seasonal revenue and continuous costs.
Advance payment also eliminates the collection risk of a card that fails at check-in and the administrative cost of chasing it.
Both effects are small individually and meaningful across a whole property or fleet, which is why the discount can be offered systematically.
The risk you accept is broader than cancellation
A prepaid booking exposes you to your own plans changing, but also to circumstances outside them — illness, weather, a schedule change elsewhere in the itinerary that makes the booking useless.
It also concentrates risk if the supplier fails, since you are an unsecured creditor for money already paid. That matters more with small operators and long lead times.
Terms differ between sellers and between rates on the same page, and they are revised, so the cancellation text attached to the specific rate is what governs.
Some of the risk can be moved again
Travel policies, certain card protections and cancel-for-any-reason products exist to transfer part of that exposure back, at a cost that varies with how broad the cover is.
Whether that cost is below the prepaid discount is the actual comparison, and it usually depends on trip length, total value and how firm the plans are.
A practical rule for mixed itineraries
The reasonable approach is to prepay the components you are certain about and keep flexibility on the ones that depend on the others, rather than choosing one policy for the whole trip.
Long lead times argue for flexibility and short ones for prepayment, because uncertainty falls as the date approaches while the discount usually does not grow to match it.