Can I repay loan debt early?

Paying off a loan early is usually possible, but there may be penalties and conditions attached. Find out where you stand.

Paying off a loan early is usually possible, but there may be penalties and conditions attached. Find out where you stand.

Rob Silvey
Finances expert
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Posted 6 JULY 2021

What do I need to know about repaying loans early?

Whether you can repay all or part of your loan early will depend on your agreement with your lender.

The credit agreement you signed or were sent at the time you took out the loan will have a section on early repayment conditions and any fees and charges.

These charges are to cover the interest you would’ve paid in months to come, if you continued with the full length of the agreement.

Can I repay my loan debt early?

Loan providers must allow you to pay back a personal loan in full, but this can come with an early repayment charge (ERC) of around one to two months’ interest. Any fees and how they’re calculated should be set out in your loan information and agreement, so you know what to expect if you repay early.

Other fees may apply if your loan is for more than £8,000 but these fees must be fair. They could be:

  • the remaining interest OR
  • 1% of the amount repaid early if the agreement has more than a year to run OR
  • 0.5% of the amount repaid early if the agreement has a year or less to run.

What if I want to make a partial repayment?

If you want to make a partial overpayment (to pay back only some of your loan), then different conditions apply depending on when you took out your loan and how much you want to repay:

  • For unsecured personal loans taken out before 1 February 2011 and many secured homeowner loans, you’re not usually allowed to make partial overpayments.
  • If you took out your loan after 1 February 2011, depending on the type of loan you have, you can make partial payments without being charged extra interest – as long as you don’t make extra payments of more than £8,000 over a 12-month period. Exclusions and other fees may still apply.
  • If you want to make extra payments of more than £8,000 in 12 months, then the maximum interest charge your lender could make is 1% of the amount you’re repaying. Exclusions and other fees may still apply.
  • If you’re in the last year of your loan payments, then the maximum interest penalty you could be charged is 0.5% of the amount you’re repaying. Exclusions and other fees may still apply.

Check the credit agreement you have with the lender for full conditions of any early repayment fees as these can vary. When choosing a loan, if you think you might be able to pay it off sooner, it can be worth looking for one without early repayment charges to start with.

Don’t forget you may be better off switching your loan (paying off your current loan with a new one), even if fees apply. You might be able to find a better interest rate or pay it off over a shorter period. It’s worth comparing other loans available and working out what’s most suitable for you.

Why it’s important to consider how much money you need

Knowing how much you need to borrow will help you decide where best to find that extra cash injection.

  • If you only need to borrow a small amount of money for a very short time, consider using your interest-free overdraft, if you have one. If not, it could be worth looking at different current accounts that offer this facility.
  • Credit cards with 0% interest purchases could be worth considering, particularly if you need to buy something specific. As long as you pay back what you owe within the interest-free period (and make at least the minimum monthly payments on time), you can rest in the knowledge that the credit hasn’t cost you a single penny extra.

If you need a larger sum of money, a personal loan could be the best answer. You can usually opt to borrow a minimum of £1,000, with upper limits depending on the lender. Most will lend you up to £25,000, although some may go as high as £50,000. 

The best APRs (annual percentage rate – this is the amount of interest, plus any fees, you pay on top of your loan) are reserved for customers with the best credit ratings. That’s why when you apply for a loan, you need to know that the APR you see might not be the one you get, unless it’s labelled as a guaranteed APR.

Loan calculator

If you’re thinking about taking out a loan, use our loan calculator to work out how much you can afford to borrow and how much it will cost each month.

Where can I compare loans?

You can compare loan options with us. Just enter how much you want to borrow to see the results for a new personal, homeowner or debt consolidation loan with our comparison service.

Easy-to-read tables and key features, including early repayment fees, make it as simple as possible.

Frequently asked questions

How much could I save by paying my loan early?

The amount you could save depends on the size of your loan, how much interest you’re paying and how much time left you have on the loan.

For example, if it’s a large loan with a high interest rate and you still have a few years left to pay, then early repayment could end up saving you thousands of pounds in interest. On the other hand, if you only have a few months to go before your loan term ends and the interest you’re paying is reasonably low, you probably won’t save enough for it to make a difference.

The best way to find out how much you could save is to calculate what you owe with your normal monthly payments, then compare it to how much you’d have to fork out if you repaid the loan early. Your lender can help you work this out.

How can I find out which lenders charge an early repayment fee?

If there’s a chance that you’ll be able to pay off your loan earlier than expected, you might prefer to look at lenders that don’t charge an early repayment fee. When you compare loans through us, you’ll be able to see the key features of each deal, including early repayment charges if applicable.

Top tip

Always read the terms and conditions of the credit agreement before you jump in and sign up for a loan. What may seem like a cheap deal could end up more expensive if it comes with an early repayment charge.

Can I cancel a loan once I’ve borrowed the money?

With some loan applications taking only 24 hours to process, it can be all too easy to jump in and sign up, then change your mind afterwards. Luckily, when you take out a loan, you have a 14 day ‘cooling off’ period in which you can cancel the agreement.

If the money’s already been transferred into your account, you’ll need to pay it back in full within 30 days. Try to repay this as soon as possible, as the lender is legally allowed to charge you interest until they get the full amount back.

If I think the early repayment charge is unfair, can I complain?

If you think you’re being overcharged or your lender is treating you unfairly, you have the right to complain. First off, you should complain directly to your lender. If you’re not satisfied with the results, you can take your case to the Financial Ombudsman Service (FOS). The FOS offers a free and impartial service, and has the power to resolve disputes between financial organisations and their customers.

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