Can you pay off a loan early?

Do you get charged for paying off a loan early?

Some lenders make you pay an early repayment charge when you pay off your loan before the agreed end date. This fee helps the lender recover some of the interest they will miss out on.

The charge is usually either a percentage of what you owe or equal to one or two months of interest. Your loan agreement will tell you exactly how much you'll pay.

Not all loans have early repayment charges. Certain lenders let you pay off your loan early without any penalty at all.

How to avoid early repayment charges

You can avoid early repayment charges by checking your loan terms before you sign. Look for loans that don't charge penalties for early repayment.

Some loans let you make overpayments up to a certain amount each year without charges. For example, you might be able to pay an extra 10% of your balance annually without fees.

You could also wait until any early repayment charge period ends. Sometimes lenders only apply charges during certain parts of the loan term, so check your loan agreement.

Do you pay less interest if you pay off a loan early?

Yes, you'll pay less interest when you clear your loan early. Lenders charge interest on the amount you owe, so the less time you have the loan, the less interest builds up.

Example: Let's say you have a £10,000 loan over five years with an interest rate of 11%. If you pay it off after three years instead, you'll save two years of interest charges, which would add up to £553.25.

Even with an early repayment charge, you might still save money overall on interest.

Is it cheaper to pay off a loan early?

Paying off a loan early is often cheaper, but not always. You need to compare the interest you'll save against any early repayment charges.

If your early repayment charge is less than the interest you'd save, it can make financial sense to pay off your loan. If the fee is higher, you might want to keep making regular payments instead.

It’s also worth considering what paying off your loan early could mean for you financially elsewhere, e.g. would you still have emergency funds left over?

Use a loan calculator to work out the numbers for your situation. This helps you make the right choice for your money.

Pros and cons of paying off a loan early

Pros	Cons
You'll save money on interest charges	You might have to pay an early repayment charge
You'll become debt-free sooner	Your savings might earn more interest than you'd save on the loan
You'll have more money each month once the loan is cleared	You might need the money used to pay the loan off for emergencies

Does paying off a loan early hurt your credit?

Paying off a loan early doesn't usually hurt your credit score. In fact, it often helps because it shows you can manage debt responsibly.

Your credit report will show that you've successfully repaid a loan. This demonstrates to future lenders that you're a reliable borrower.

However, if this is your only active credit account, closing it might slightly reduce your credit score. This effect is usually small and temporary.

How to pay off a loan early

• Contact your lender to get an early settlement figure. This tells you exactly how much you need to pay to clear your loan completely.
• The settlement figure includes your remaining balance plus any early repayment charges. It's usually valid for around 28 days.
• You can then make the payment by bank transfer or through your online account. Once processed, your lender will confirm your loan is cleared.

What happens if my lender won't allow early repayments?

In the UK, all lenders must let you pay off your loan early. This is a legal requirement under consumer credit rules. Your lender cannot stop you from clearing your debt before the end of your loan term.

If you think your lender is refusing to let you make an early repayment, contact them in writing to remind them of their legal obligation. You can also complain to the Financial Ombudsman Service if your lender won't follow the rules.

Can a loan be written off?

Personal loans are rarely written off and usually need to be repaid in full.

Secured loans (sometimes referred to as homeowner loans) are even harder to write off because they're tied to an asset, usually your home or car. If you can't repay a secured loan, the lender has the right to take the asset you used as security.

However, if you're struggling with debt, you might qualify for a debt solution like a Debt Relief Order or bankruptcy. These can postpone or clear some debts, but they have serious effects on your credit file and financial future.

Speak to a free debt advice charity like StepChange or Citizens Advice if you're worried about your debts.

Can I cancel my loan?

You usually have 14 days to cancel most loans under UK consumer credit rules. This is called your cooling-off period or right to withdraw.

If you cancel within this time, you'll need to repay the money you borrowed plus interest for the days you had it. You shouldn’t face any other charges.

After 14 days, you can still pay off your loan early, but normal early repayment rules will apply.