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Can I pay my loan off early?
If you’ve taken out an unsecured loan, whether it’s for a kitchen makeover or to buy a car, it might be the case that you don’t need the money for as long as you thought. Maybe you’ve started earning more money at work, got a bonus or an inheritance, or you’re just budgeting more frugally now: whatever the reason, you might want to pay back your loan early.
But will you be able to do this, or does a loan have to continue to its full term? Let’s find out about everything you need to know when you’re paying back a loan before it’s due.
Clearing the debt
Paying a loan back early is known as ‘settling the loan’. The main advantage of settling the loan early is that because you aren’t paying it back over as long a period you could pay less interest in total.
You could also decide to consolidate several loans into one new loan, which would mean ending your other loans early. If you’re looking to do this, Ocean could help you find a debt consolidation loan.
Early repayment charges
Most loan providers will make a charge if you want to settle a loan early. There’s no set amount that an early repayment charge can be but it shouldn’t be an unfair amount. The lender is allowed to recoup its costs so you could be charged one or two months’ interest, but the earlier you repay your loan, the higher this fee is likely to be.
If you are thinking about clearing your loan contact your lender and ask for an early settlement amount. This will include any fees and will give you a total amount you need to pay to clear the loan completely.
If you’re near the end of your loan when you’re considering repaying early, it’s worth weighing up whether it would be cheaper just to continue paying it as normal. It might still be that you’ll save more in interest by settling the loan and paying the early redemption charge – you’ll just need to work out which will be better value. You could still ask your lender for an early settlement amount, see how much this would be and continue making your payments as normal if you think the early redemption charge will be too high.