Early loan repayments

Wondering whether it makes sense to pay off a loan early? Find out more in our guide.

Early loan repayments explained

If you’ve taken out a loan, you always have the right to settle it early. You can check this in the terms and conditions of your loan agreement.

There are two different ways you can pay it off. With both options you’ll always get a letter from your lender explaining either what the impact of the payments are or how much the settlement total is.

By making additional payments

By paying extra amounts each month you can gradually reduce the amount of money you owe. These are known as partial early settlements.

By paying off the loan in full

You can choose to pay off your loan in full. To do this, you’ll have to let your bank know and then you’ll get a letter with a date which to pay the settlement by. It will detail the amount you need to pay (plus a month’s compensation and the interest rebate owed). You’ll get 28 days to make a decision (28 days interest is accounted for plus the one-month compensatory interest).

Should you pay off a loan early?

If you’re in a position to pay off your loan early, you could save money on interest payments - especially if you’re just starting out with your agreement. But, it’s worth checking if early repayment is the most cost-effective option for you, as it isn’t always cheaper in every case.

 

If you're closer to the end of your term and there’s early repayment fees to front, it could make it more expensive - so you'll need to do some calculations.

 

You'll need to find out the following before making a decision:

  • how much you've paid back already
  • how much you still owe
  • what interest charges you owe
  • what the rebate might be.

Early repayment compensation is payable because lenders can lose out on interest if you pay your loan back early. Depending on where you are in the loan term, they can be costly. No compensation is payable on interest free loans.

How do you pay back a loan early?

There are a few simple steps to follow to pay back a loan early. Usually, once you've received your settlement fee you have 28 days to decide on whether to pay it back or not. If you decide to go ahead after that window, you'll need to request a new settlement figure as it will need to be recalculated.

Option 1

Ask for an early settlement figure from your lender. This will show how much money you still have left to pay – including any interest payments. Once you've got this you'll have a clear idea of how much it will cost you to pay back your loan, including fees and charges.

Option 2

Review the T&Cs of paying back your loan early and check whether there’s a settlement fee. If there is, you’ll need to work out whether it’ll cost more to pay back the loan early than it would to carry on paying it back with interest.

What type of loan can be paid back early?

Most loans can be paid back early at a cost. The main types of loans people choose to pay back early include:

What are the fees and charges for paying back a loan early?

The early repayment fees you’ll need to pay will vary depending on your lender and the term of the loan.

 

The shorter the term, generally the less interest charges you’ll need to pay. But the best way to find out is to speak to your lender and request a settlement fee.

 

To find out more about the specific fees and charges for paying off a first direct loan early, visit our Personal Loans FAQs.

 

It’s important to note that you can’t use a credit card to pay off a loan. But, if you're looking for other ways to save money on paying back a loan early, you could also explore these options:

  • refinancing
  • reducing the loan term
  • increasing your repayments.

Looking to borrow?

Find out more about the first direct Personal Loan and whether it's right for you. You can apply for a loan with us on the first direct App, online, or over the phone. 

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