Can you repay your personal loan early?
What you need to know before you close out your loan ahead of schedule.
Being able to repay your personal loan before the scheduled due date is a great achievement. You will pay less interest than is set out in your loan contract and you may save annual or monthly fees as well. However, it’s important to know whether you can repay your loan early without being charged prepayment penalties.
This guide will take you through how to check whether you will be charged prepayment penalties and how to work out if you’ll actually save by paying your loan off ahead of schedule.
Can I repay my personal loan early?
You are able to repay your personal loan whenever you want, even if that is ahead of schedule. However, many people choose not to do this because of early repayment penalties. Lenders charge these “penalties” to deter people from closing their loans early. Penalties are not charged on every personal loan, usually only on fixed rate personal loans, but you need to be sure that closing your personal loan early will not cost you more in penalties than you will save in interest.
What do I need to do before I repay my personal loan ahead of schedule?
Before you decide to repay your personal loan ahead of schedule, here is what to do:
- Check your loan contract for early repayment fees. All fees that apply to your loan will be set out in your loan contract and these include any fees you will be charged if you close your personal loan early. Look for “early repayment penalty” or “early repayment fee”.
- Confirm with your lender. Even if you have checked in your contract, get in contact with your lender and confirm what you will be charged for repaying your loan early. Ask for the total payout cost of the loan and get your lender to spell out what early repayment fees are included. If you do this over the phone, ask for the information emailed to you so you have it in writing.
How do you actually repay your personal loan early?
The process differs between lenders, but you will generally start by getting in contact with your lender. It will give you the total payout figure. Then the lender will either direct debit that amount from your account the same way it takes repayments from your accounts or it will provide you with details of how to make the payment.
After the payment has been made you need to check that the loan account has been closed. This may take a little bit of time but it’s important to confirm. You can also check your credit report to see that it’s been updated with the new account information and see if your credit score has been affected.