If you’ve found yourself with some spare cash, you might be deciding on the best way to spend it. And if you have an existing loan and would like to make more payments toward it, an overpayment may be an option.
In this guide, we’ll explore:
- What a loan overpayment is
- How overpayments work
- Why you may want to overpay a loan
- How to make a loan overpayment, and if you’re eligible
Have an existing loan or need advice on applying for a loan? See our expert help and guidance page for practical support.
What does a loan overpayment mean?
A loan overpayment is when you pay back more than your agreed monthly repayment. The scheduled amount should be outlined in any loan agreements you signed, such as a binding mortgage offer for a secured loan.
You may choose to overpay a loan for various reasons. For example, if you’ve got more money available each month than you did when you took out the loan. You may also have some spare cash left over unexpectedly that you want to put towards your loan.
Not every type of loan allows you to make overpayments, and some lenders may issue fees for early repayment. Some loan and mortgage lenders offer an overpayment allowance of 10%, which lets borrowers repay up to 10% of their loan balance each year. If this amount is exceeded, it may result in Early Repayment Charges (ERCs). It’s important to check your APR/APRC terms and loan conditions before making any overpayments on a loan.
How do loan overpayments work?
Overpaying is always your choice as the borrower. Lenders can’t legally ask you to make an overpayment.
Most lenders allow you to make overpayments as a one off lump sum or by regular payments throughout the year. It’s important to remember that you’ll still need to make regular monthly repayments going forward.
For most loan types and lenders, an overpayment is taken off the principal balance (the amount you owe) to reduce the overall loan term. This is how it works for a secured loan overpayment with Evolution Money. In some cases, a lender may give you the option to reduce your monthly repayments without changing the loan term.
How do overpayments affect your loan?
Making an overpayment on your mortgage or a loan may affect repayment rates over time. In order to see what impact an overpayment could have, you can use online loan calculators. With these tools, you input your loan balance, interest rate, the agreed repayment rate and any planned overpayments. From here, you’ll be able to see if any interest may be saved and if an overpayment may lead to early repayment of your loan.
With a tool like this, you’ll be able to work out whether it would be better for you to make regular overpayments or a one off lump sum.
What are the benefits of loan overpayments?
If you have the funds available to overpay on your loan repayment, this may help you:
- Reduce the amount of interest you pay over the loan term by lowering the principal balance
- Reduce your outstanding loan balance more quickly
- Shorten your mortgage or loan term
Are there any downsides to overpaying a loan?
An overpayment should only be made if it’s affordable and suits your circumstances. Before choosing to make one, it’s worth considering:
- If you need to set any extra cash aside to prepare for unexpected bills
- Some lenders charge overpayment fees, which may end up increasing costs
Can I make a loan overpayment?
Overpaying a loan may be an option if you have a second or third charge mortgage (secured loan) or a personal (unsecured) loan. This all depends on what your lender allows and the terms of the agreement you entered.
Overpayments for some secured loans are possible without penalty, but not all. It’s worth checking what your lender allows before doing anything.
Here at Evolution Money, we give all customers the option to make secured loan overpayments with no additional charges. Your loan must be fully up to date with no unpaid deferrals. Also, the overpayment must not exceed the amount you owe. If you pay off your loan sooner, an early repayment charge may apply. Your loan agreement will tell you exactly how we work this out.
How do I make an overpayment on a loan?
Different lenders have their own loan process. Some banks and institutions allow overpayments to be made online or via their website or app. Other lenders may ask you to get in touch over the phone.
To make an overpayment on your secured loan with Evolution Money, the process looks like this:
- Call us on 0161 814 9975 and let us know you want to make an overpayment.
- We’ll ask you a few questions to determine whether it’s the right option for you.
- If you’re eligible to make an overpayment, we’ll give you a quote on how much interest you may be able to save. This is to help you make an informed decision that’s in your best interest.
We can take payment over the phone or give you the details to make a bank transfer. Once we’ve received the overpayment, the amount will be taken off the principal balance. Then, your loan term will be adjusted accordingly.
Make your loan work for you with Evolution Money
Whether you need extra funds to put towards your home or are investing in a new opportunity, we offer secured loans with the option to make overpayments.
With the option to borrow between £5,000 and £105,000 and loan terms of between 3 and 20 years available, we may be able to help you find a secured loan that suits you. We’re a trusted loan provider, with an ‘Exceptional’ rating on Feefo.
Check your eligibility or get in touch with our qualified advisers for more information on loans and overpayments.
All loans are subject to status and eligibility. Available to UK homeowners aged 21 or over. Terms and conditions apply. Not all applicants will be accepted.
Don’t rush into securing a loan against your home. Falling behind on mortgage or secured loan repayments may put your home at risk of repossession.
Representative 17.46% APRC (Variable)
For a typical loan of £23,120 over 120 months with a variable interest rate of 17.46% per annum, your monthly repayments would be £442.07. This includes a Product Fee of £2,312.00 (10% of the loan amount) and a Lending Fee* of £763.00, bringing the total repayable amount to £53,047.80. Annual Interest Rates range between 8.6% to 27.87% (variable). Maximum 50.00% APRC. *Lending Fee varies by country: England & Wales £763, Scotland £1,051, Northern Ireland: £1,736.
Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other loan secured against it. If you are thinking of consolidating existing borrowing, you should be aware that you may be extending the terms of the debt and increasing the total amount you repay.
