Can I pay my loan off early and will there be any charges?
Repaying a loan before the term has ended can seem like a sensible move, but be aware that often this comes at a price. This additional charge for repaying a loan early can be known as one of the following:
- Financial penalty
- Early repayment charge
- Early repayment penalty
- Redemption charge
- Early redemption fee
Usually, this early repayment charge will equate to one or two month’s interest. This interest component is higher at the start of the loan which means that the earlier you want to pay off the loan, the more it will cost.
Also, taking out a loan for debt consolidation to repay an existing loan early may also incur an early repayment charge.
Not all loans come with an early repayment charge, but it is a common occurrence so be sure to read your loan agreement thoroughly to check what it would cost you to repay the loan early. If you come into some money it may be more beneficial to you to put the money into a separate account and use it to repay the loan at the agreed rate and term. This way you can benefit from the interest the money will accrue in your account, be sure to make your repayments on time, and be free from any charges.