Can I pay off a loan early?

Most lenders allow you to pay off your loan early, but it’s important to make sure you can afford to do so. Some lenders apply early repayment charges (ERCs) if you end your agreement ahead of schedule.

6 min read
Loan contract

Do you get charged for paying off a loan early?

If you pay off a loan early, lenders lose out on interest. Many lenders (but not all) get around this by charging fees known as early repayment charges or early redemption fees.

Early repayment charges vary depending on the type of loan you have, how much you have left to pay, and the lender’s own policy on them. If they’re charged, they tend to start at one or two-months’ interest.

The exact cost of these fees will be detailed in your loan documentation, which you’ll receive before you sign your agreement. 

Is it cheaper to pay off a loan early?

Whether it is cheaper or more expensive to pay off a loan early depends on your individual circumstances. You may want to consider:

  • How much it will cost and how far into the loan you are – ERCs tend to be higher towards the beginning of your loan, as this is when you typically pay the highest proportion of the interest on your loan.
  • How much you would save in interest by paying the loan off early – This can be worked out using an early repayment loan calculator. 

Once you’ve weighed up the cost against the potential savings, you should have a better understanding of whether paying off the loan early is the right option for you.

Pros and cons of paying off a loan early 

Benefits Drawbacks
Could save money on interest May face early repayment charges
No longer need to pay monthly loan payment If loan interest rate is low, it could be more efficient to use money elsewhere, e.g., paying other debts off first
Credit score may improve as debt will be classified as ‘satisfied’ Paying loan off early could impact ability to pay other priority bills


Don’t sacrifice your priority bills

When considering whether you can pay off a loan early, it’s important to ensure this is not done at the expense of any priority bills. These are bills and debts which could affect your home and health, or possibly result in additional debt or legal action if not paid.

Reasons to pay off your loan early

Loans may be taken out over many years, during which time your circumstances can change. Some common reasons people decide to repay a loan early include:

  • Selling your home - You could potentially use the proceeds of the sale to pay off your loan instead of transferring it to your new property.
  • Finding a better deal - You may want to consolidate your debt to get a lower interest rate. But bear in mind that consolidating your debts could extend your loan term, which can increase the amount of interest you pay in total.
  • Having savings - You might want to use any savings to pay off the loan, so you don’t have to think about monthly payments or pay any more interest (but remember, only use what you can afford)

Again, remember to take potential early repayment charges into account.

How to pay a loan off early

If you’ve weighed up your options and decided to pay off your loan early, how do you go about it?

If you want to pay it off in full 

To completely satisfy the loan (pay it off in full), there are three key steps:

  • Contact your lender to request an early settlement figure and confirm if early repayment charges apply
  • You can either repay the settlement figure in full, or continue making your monthly payments
  • Should you choose to repay the loan in full, the final step is to clear the balance

Once you’ve made that final payment, the lender will cancel any recurring payments and mark the debt as satisfied on your credit report. The record of the loan will drop off your report automatically six years after the date you settled the loan.

If you want to make an extra payment

If you’re looking to pay your loan off sooner, but can’t repay it in full yet, you could consider making one or more extra payments. Some lenders allow you to make overpayments towards your loan, up to a limit, without incurring early repayment charges.

An overpayment is a payment that’s higher than your usual monthly payment. You could make it at the same time as your monthly payment, or another time. It reduces your remaining loan balance, and so reduces your overall interest, too. Here’s how you do it:

  • Contact your lender - let them know that you want to make an overpayment
  • Find out if there are any early repayment charges
  • Check how much you’ll have left to pay after the overpayment, and how it affects the remaining loan term and your monthly payments – they may change
  • Make the overpayment

How to avoid early repayment charges on loans

If early repayment charges are included in your loan agreement, they are enforceable by your lender. This is one reason why it’s important to check the terms of your agreement before acceptance. You may want to find a loan that is not subject to early repayment charges.

If your loan has early repayment charges that you want to avoid, remember to keep to your exact monthly repayments, or within any overpayment allowance stated by your lender.

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

Most lenders will allow you to make early repayments. In the unlikely scenario that they don’t, the best course of action is to raise a complaint with your provider. If you don't hear back or you're unhappy with their response, you can contact the Financial Ombudsman Service.

Can a loan be written off?  

It’s unlikely that a loan will ever be written off, apart from in exceptional circumstances
If you are struggling to repay your loan, you should speak to your lender to see what they can do to help. Never simply stop paying without speaking to them. If your loan is secured against an asset, it could put it at risk. 

Can I cancel my loan?

If you’ve changed your mind, you have 14 days to cancel your loan after signing your credit agreement. If you’ve already received the money, you will have to give it back. You may also be charged interest for the time you had the loan. So, it’s important you carefully consider whether cancelling is the best decision.

If it’s longer than 14 days since you signed your agreement, your lender will be able to discuss the options available to you.

Read our helpful guides to learn more about loans.

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Intelligent Lending Ltd is credit broker, working with a panel of lenders. Homeowner loans are secured against your home.

Disclaimer: All information and links are correct at the time of publishing.

Zubin Kavarana, Personal Finance Writer

Zubin Kavarana

Personal Finance Writer

Zubin is a personal finance writer with an extensive background in the finance sector, working across management and operational roles. He applies his experience in customer communication to his writing, with the aim of simplifying content to help people better understand their finances.