Loan providers must allow you to pay back a personal loan in full before the end of the loan term, but it can come with an early repayment charge of typically 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.
Under the Consumer Credit Directive, 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 on the loan agreement to go, once 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.