So, can I repay my loan debt early?
Your loan contract should clearly state what your options are when it comes to paying back your loan. But sometimes it can be difficult to make sense of what is actually being said. Terms such as ‘early repayment charges’, ‘early payment penalties’ and ‘financial penalties’ all refer to fees that may be charged if you decide to pay back your loan early.
If you took out your loan between June 2005 and 1 February 2011 then you can be charged up to two months’ interest. But be aware that the earlier you try and repay your loan, the more interest you’ll be charged.
Depending on the type of loan you have, if your loan was agreed after 1 February 2011 then the changes made as a result of the ‘Consumer credit directive’ will work in your favour. The directive says that you can make early payments (known as a partial early settlement) or pay off all of your loan early (a full early settlement) without being charged for it – as long as you don’t pay off any more than £8,000 over a 12 month period.
If you have paid off more than the £8,000 and there’s more than a year to go on your repayment, then you can be charged up to 1% of the amount being repaid early. If you’re in the last year of your loan payments, then that figure is reduced to 0.5%. The level of charges also cannot be more than the remaining interest before the rebate.
Of course – like all rules, there are some exceptions and even if you want to make an early repayment of less than £8,000 then you could still face some early repayment fees depending on the type of loan you have.
Make sure you read your credit agreement in full to understand what fees or interest may apply if you pay back the loan early.