60-second summary
Can I repay a loan early? Yes, you can, although you could face an early repayment charge to do so. You can make a partial repayment too, if you prefer.
What are the fees? You can usually repay up to £8,000 to settle in a year without any charge at all. But if it costs more than this to settle, your lender can charge you up to two months’ interest (or just one month’s interest if you’ve less than a year to go until it’s all paid off). If you pay off part of your loan rather than all, the same charges apply.
How do I repay early? Get in touch with your lender and ask for an early settlement statement. This will tell you how much you’ve paid, what’s left and the size of any early repayment charge.
Is it a good idea to repay your loan early? Whether it’s suitable for you will depend on your individual circumstances but check to see if any early repayment charge outweighs your savings on interest. If you don’t have any emergency savings, it could be a good idea to use any extra cash to build this up instead.
Are there any alternatives to repaying a loan early? You could reduce interest in other ways, including taking out a new cheaper loan to pay off the old, more expensive one. If possible, you could shorten your loan term or pay more each month.
Can you pay off a loan early?
Yes, paying off a loan early is possible, if you can afford to do so. Loan providers, including banks, must allow you to repay a personal loan early in full, but they can impose an early repayment charge (ERC).
The size of this fee will vary between lenders. When you take out a loan, the original agreement you sign will include a section on early repayment conditions. This will have all the details of any charges.
What are the fees involved with paying off loans early?
Under Consumer Credit Regulations, if you took out a loan after February 2011, you can typically settle your loan up to £8,000 a year without being charged a fee.
If you’re going to repay more than £8,000 to settle, lenders are allowed to charge a fee of up to two months’ interest (as long as they’ve incurred a cost from you paying back the loan early). If your loan has fewer than 12 months to run, lenders can only charge up to one month’s interest.
These fees allow lenders to cover some of the interest you would’ve paid if you’d carried on with the full length of the loan agreement.
The rules also apply to partial overpayments (when you pay back some of your loan early, but not all). But you might not be able to make partial overpayments on unsecured personal loans taken out before 1 February 2011 and many secured homeowner loans.
Check your credit agreement with the lender for the full conditions of any early repayment fees or overpayment penalties, as these can vary.
How do I pay off a loan early?
First, contact your lender and ask what it would cost to fully clear your loan. You should receive this settlement statement within seven days of making your request. It should tell you:
How much of the loan you’ve already paid off
How much you still owe
Any early repayment charges or penalty fees that apply.
Once you’ve received your early settlement offer, you have 28 days to decide whether to make the early repayment. If you decide not to go ahead, you can continue your repayments as normal. If you want to, you can ask your lender to recalculate your early settlement amount again in the future.
Is it a good idea to pay off my loan early?
This will depend on your personal circumstances and the terms of your loan agreement. As a general rule, if you have some extra money coming in, using it to clear (or reduce) your debts seems like the responsible thing to do.
However, to decide if paying off a loan early is the right option for you, you’ll need to weigh up how much you’ll pay in any early repayment charges against the amount you’ll save in interest.
And consider whether paying off your loan early could put you at risk in the event of a financial emergency. Say you use your extra cash to settle your loan, only to face a large, unexpected bill a few months later. With your financial cushion gone, there’s a risk you won’t be able to pay it.
If you don’t currently have an emergency fund, then you might want to keep hold of your extra cash for this, rather than using it to make an early loan repayment.
If you do have enough money saved to cover three to six months’ worth of bills and expenses in an emergency fund, as well as the cash to repay your loan early, then repaying the loan won’t pose as much of a risk to you.
What are the alternatives to paying off a loan early?
Paying off a loan early isn’t the only way to save on interest. It could be worth exploring these options too:
‘Refinance’ to a cheaper loan – you might be able to take out a new loan and use it to pay off your existing loan. While you’re still likely to face an early repayment charge on the old loan, you could save money overall if the new loan has a lower interest rate. Make sure you double-check all the calculations to see if this could work for you before you apply.
Reduce the time you take to repay – this would raise your monthly loan payments but reduce the overall interest you pay. Check if your lender allows this and make sure you’re able to afford the increased amount every month. If you miss a payment, you’re likely to be hit with a fee for paying late.
Make bigger monthly payments – you may be able to increase the size of your monthly repayment, which would shorten the loan term and lower the amount of interest paid. You’ll need to confirm with your lender if these adjustments are possible and whether there are any limits. Again, do think carefully about whether you can afford to pay the higher amount every month for the length of the loan.
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FAQs
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 and the time left until it’s repaid in full.
You can ask your lender to provide you with an early settlement statement that clearly sets out how much you’d save by repaying early and how much you’d have to pay in early repayment charges.
How can I find out which lenders charge an early repayment fee?
When you compare loans with us, you’ll be able to see the key features of each deal, including whether any early repayment charges apply.
Can I cancel a loan once I’ve borrowed the money?
When you take out a loan, you have a 14-day ‘cooling-off’ period in which you can cancel the agreement. This is your right, under the Consumer Credit Act 1974.
If the money’s already been transferred into your account, you’ll need to pay it back in full within 30 days.
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 make a complaint directly with 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.
Can I repay my car loan early?
Yes, you can usually repay a car loan or car finance deal early, although you may have to pay an early repayment charge.
You’ll need to contact the lender or finance provider and ask for an early settlement amount. Once you’ve received that, you have 28 days to decide whether to make the early repayment.
Can I pay off my mortgage early?
Yes, you may be able to pay off your mortgage early, but you’re likely to trigger a hefty early repayment charge. An alternative could be to make overpayments on your mortgage.
You could overpay with a one-off lump sum or by paying more each month than is required. Most lenders have a limit on how much you can overpay by each month or in a 12-month period.
Check your mortgage agreement or ask your lender to confirm the maximum you can overpay without paying a penalty.
Does paying off a loan early hurt my credit score?
While it’s essential to repay what you owe, paying off a loan early could have a negative impact on your credit score in the short term.
That’s because by paying off the loan in full, your credit report shows the account as closed, so lenders won’t have this evidence to consider in any future applications for credit cards or loans.
In contrast, when you pay off a loan consistently and on time, it shows to lenders that you can manage debt responsibly. This has a positive impact on your credit score.

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