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Can I repay loan debt early?

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.

Anelda Knoesen
From the Money team
minute read
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Posted 20 NOVEMBER 2019

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 have 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 it  can come with an early repayment charge of around 1 to 2 months' interest. Any fees and how they are 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 before the rebate 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

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 are 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 for it – 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 still vary. When choosing a loan, if you think you may be able to pay it off sooner, it can be worth looking for a loan 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 may 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. 

Should I speak to my lender first?

Yes. If you want to make a partial overpayment, then a 28-day notice period applies. You’ll be charged interest on the full amount you owe for 28 days after you notify your lender of an extra payment.

If you want to pay your loan off in full, you’ll need to ask your lender for an ‘early settlement amount’ which is a recalculation of what you owe based on:

  • What you’ve already paid and the amount you still owe
  • What interest charges apply
  • Whether they are any early payment fees

Your lender’s obliged to give you this figure if you ask for it, and to give you at least 28 days to think it over. If you decide to pay it you will need to pay the outstanding early settlement amount by the settlement date the lender has given you – otherwise it will need to be recalculated. 

If you don't ask the lender for the figure you may end up paying the wrong amount.

You don’t have to pay off the loan if you decide you’d be better off continuing with your monthly instalments.

Where can I compare loans?

Compare loan options easily. 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. 

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