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When you take out a loan, you select one based on your current situation, but over time your finances might change. You could find yourself in the joyous position of being able to repay a loan early. A time to rejoice hotshot, but also to be wary – paying off a loan early can result in a hefty early repayment fee.

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Whether it’s a personal loan, home loan, cash loan, car loan, student loan or mortgage, if you pay off your debt faster than required, you’ll benefit from lower total interest charges and, obviously, spend less time in debt. However, before you swagger into the bank waving your wad of cash in the air, there are some facts you need to know. Like a team who’ve scraped into the knockout stages of a big tournament, it can be so easy to lose on penalties. Fear not though, I can help you score with my words of wisdom.

Penalties for early repayment

Early repayment (or resettlement) is where you clear your debt before you’re legally obliged to. Many banks and lenders charge penalties for repaying loans early. There’s no standard figure, but the average is approximately the equivalent of 1-2 months’ interest. You could use an online interest calculator to work this out. Unlike my robes, one size doesn’t fit all, so it’s worth checking your specific policy to find out the exact settlement figure.

If you want to pay off a loan early, under the Consumer Credit Act you should get a refund of any interest and charges you’ve already paid. Just write to your lender and ask them for an ‘Early Settlement Amount’ for your loan – this should be any fees minus any reimbursements you’re owed.

Why would they do that to me?

What more do they want? You’d think that banks and lenders would want to get their money back as soon as possible. However, they need to recoup some of that moolah that you’d have paid in interest had you repaid your loan over the fixed time.


Different lenders often don’t speak the same lingo, so don’t be confused if you see phrases like early repayment charge, early repayment penalty, early redemption fee, redemption charge or financial penalty – they’re all the same thing.

Partial repayment

You don’t have to pay the full amount of your loan off at once – you could always opt for a partial repayment option. In this instance, you may be able to negotiate with your lender to decrease your monthly instalments.

Not all loans penalise for early repayment, and it’s a good idea to explore the market and compare the deals on offer. Always weigh up the repayment fees to establish which course of action will save you the most money.