Everything you need to know about paying off a personal loan early uk in the UK.
Yes, under the Consumer Credit Act 1974, you have the legal right to repay a personal loan early at any time, either partially or in full. This applies to all regulated consumer credit agreements in the UK, including personal loans, car finance, and hire purchase agreements. Your lender cannot refuse an early repayment request.
However, the lender may charge an early repayment fee to compensate for the interest they will miss out on. Understanding these charges and calculating whether early repayment saves you money overall is essential before making any lump-sum payments.
Under the Consumer Credit Act, the maximum early repayment charge a lender can apply is 58 days of interest on the amount being repaid early. If there are fewer than 12 months remaining on the loan, the maximum charge is 28 days of interest.
For example, on a £10,000 loan at 6% APR, 58 days of interest would be approximately £95. On a £5,000 loan at 8% APR, it would be around £63. These charges are relatively modest compared to the total interest saving from clearing the loan early, especially if you are in the early years of a longer-term loan.
Some lenders do not charge any early repayment fee at all, particularly on loans with shorter terms or lower balances. Check your loan agreement or contact your lender directly to find out what charges, if any, apply to your specific loan.
Early repayment is financially beneficial when the interest you save exceeds the early repayment charge. This is almost always the case for longer-term loans where a significant portion of the original term remains. The earlier you repay, the more interest you save.
💡 Before repaying a loan early, check whether you have any debts at a higher interest rate. Paying off a credit card at 22% APR before clearing a personal loan at 6% APR saves you far more money. Prioritise the most expensive debt first.
If your loan has a very low interest rate (below 3–4% APR) and you could invest the lump sum for a higher return, it may make more financial sense to keep the loan and invest instead. However, this involves investment risk and is only suitable if you are comfortable with the possibility of your investments losing value.
Early repayment also may not be worthwhile if you have limited savings and would deplete your emergency fund. Financial experts recommend keeping 3–6 months of essential expenses in accessible savings before using cash to clear debt. Being debt-free but without any financial cushion leaves you vulnerable to unexpected expenses.
Contact your lender and request an early settlement figure. This is the exact amount needed to clear the loan in full, including any interest accrued up to the settlement date and any applicable early repayment charge. The settlement figure is valid for a specific period, usually 28 days, after which you will need to request an updated figure.
For a partial early repayment, contact your lender to arrange a lump-sum payment against the loan balance. Most lenders will then either reduce your monthly payment while keeping the same term or keep the same monthly payment but shorten the term. Shortening the term is usually the better option as it saves more interest overall.
⚠️ Always request a formal settlement figure rather than simply paying the outstanding balance shown on your account. The displayed balance may not include accrued interest up to the settlement date, and you could end up underpaying, which leaves the account open and potentially accruing further interest and charges.
A full settlement clears the entire loan and closes the account. You receive a settlement letter confirming the debt is fully repaid, which is important to keep for your records. The account will be marked as settled on your credit report.
A partial repayment reduces the outstanding balance without closing the account. This gives you flexibility to reduce your debt while maintaining the credit facility. You can usually make multiple partial repayments over the life of the loan. Each partial repayment reduces the total interest you will pay.
Some lenders allow unlimited overpayments of any amount, while others impose minimum overpayment thresholds or limit the number of overpayments per year. Check your loan terms or contact your lender to understand the specific rules for your agreement.
If you have multiple loans and are unsure which to prioritise for early repayment, or if you are considering refinancing to a better rate, a loan broker can review your full financial picture and advise on the most cost-effective strategy.
Nesto connects you with FCA-regulated loan brokers who can help you understand your early repayment options and find the best approach for your circumstances. Find a personal loan broker through Nesto.
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