A loan agreement will tell you an amount you have to pay back every month.
Repaying your loan early at any time, in full or part, can be a good way of minimising cost. And loan providers must allow you to pay back a personal loan in full, but it can come with an early repayment charge of around one to two months’ interest. Any fees and how they’re calculated should be set out in your loan information and agreement, so you know what to expect if you repay early.
Some lenders advertise that you won’t pay an early repayment charge (ERC) or fee if you pay off your loan sooner than agreed. But it’s likely that you’ll still be charged up to two months interest on whatever sums you repaid early.
By law, almost everyone who took out loans from February 2011 onwards can make partial or full early settlements of up to £8,000 a year before being hit with penalty fees.
If there's more than a year left on the loan repayment period, when more than £8,000 has been paid off, the maximum penalty charge that can be levied is 1% of the amount being repaid early.
If that kind of overpayment is made in the final year of the credit agreement, the penalty can’t exceed 0.5%.
Ask your lender for a ‘settlement statement’ showing how much you’ll save by repaying early.
Other forms of borrowing might be more flexible, with low or no minimum repayment.
But the interest rates on these can be very high, so that the amount you owe can quickly increase. If you have a large overdraft, it might be best to try and secure a cheaper loan to pay it off and make regular payments to repay this.
It's important to be wary of paying only the minimum repayment on a credit card – always try to make larger payments to pay the actual amount you owe every month.
Credit card providers are obliged to contact people who have paid more in interest, fees and charges than the amount they have paid against their actual purchases over the last 18 months.
This is where you’ve paid more in interest, fees and charges than what you’ve paid back to get the balance down on your credit card.
Lenders are required to suggest higher affordable repayments. If you don’t respond, or ignore the issue, and the situation persists for more than 36 months this could lead to your account being suspended.