In short – yes – you can always pay back your personal loans early. However, you need to watch out for early repayment charges (ERCs) that you may have agreed to when you took the loan out. Even if your lender does not claim to have an ERC, you still need to watch out for hidden fees. Under Consumer Credit Regulations 2004 lenders can charge you up to 2 months additional interest if you decide to pay your loan off early. Many lenders will be open with you and call this an ERC, but others won’t, so before you pay off your loan early it’s good to check with your lender what the extra fees might be.

The cost of your early repayment charge will depend upon a number of factors and will differ from lender to lender. The Consumer Credit Regulations 2004 previously mentioned state the following:

• If you have less than 12 months left on your monthly repayment plan, lenders can charge up to 28 days’ interest.
• If you have more than 12 months left on your repayment plan, lenders can add an extra 30 days (or one calendar month).

You will therefore be charged one or two month’s interest, depending on the length of the policy you have taken out. Other fees may apply if your loan is for more than £8000, they could be:

• 1% of the amount repaid early if the agreement has more than a year left.
• 0.5% of the amount repaid early if the agreement has less than a year left.
• The remaining interest before the rebate.

If you are worried about how much it will cost to pay back your loan early, then it’s best to check with your lender before you begin the repayment process.

As mentioned above, there is some confusion with many lenders regarding their ERC policy. This is due to some lenders counting the ability to charge for additional interest as an ERC and therefore not advertising that they will charge you when you pay off a loan early.

Checking your credit agreement is the best way to find out whether you will have to pay a fee for paying off your loan early, either before or after you have taken out a loan. The agreement sets out the terms for the borrower and lender to abide by. It should detail what happens if you decide to pay off your loan early.

The below tables lay out lenders that charge an ERC and those that claim they don’t charge an ERC.

Lenders that charge ERC:

Lenders that claim not to charge ERC:

The above tables may not be up to date – please check with your lender about their current ERC policy before applying for a loan or making an early repayment.

The amount you can save from paying back your loan early will depend upon the size of your original loan, the interest rate on the loan, and the length of time left on the loan term.

For example, if you have few repayments left to make and a low interest rate then you probably won’t save too much. However, if you take out a large loan with high interest rates and decide to pay it back with a few years left on the final repayment date, then you may save thousands.

It is always worth contacting your lender directly and asking for a calculation of how much you’d owe in total with normal monthly repayments vs. how much you’d have to pay if you paid off the loan early. You can then compare the two and see how much you would save.

When you take out a loan you have a 14 day ‘cooling off’ period in which to cancel your agreement. Of course, you will have to repay all the money you have been loaned within 30 days, and the lender is legally allowed to charge you interest until they receive the loan back.