Everything you need to know about early repayment charges
Everything you need to know about early repayment charges
Secured Loans > Help & Advice > Getting and managing a loan >Understanding early loan repayment charges
There can be several benefits to repaying a loan early if it’s financially comfortable for you to do so.
You may be unsure of what early loan repayment charges apply, though, or if an early repayment charge even applies to your loan. In this article, we will arm you with the information you need that will make it all a little easier to understand so that you can make the right decision for your finances.
The different types of loans
To gain a further understanding of the early repayment charge that may apply to your loan, you need to understand how (and if) they affect the main types of loans that are taken out. The main ones include:
Secured loans
Secured loans require security to support the loan and this tends to be your home. If you fail to make the repayments, the lender has the right to claim the asset in return. Since this type of loan poses less risk to the lender, they might provide attractive interest rates or approve higher amounts to borrow, even if your credit rating isn’t the strongest.
Explore the loans we offer at Evolution Money.
Unsecured loans
That takes us to the opposite option – unsecured loans, also known as personal loans. With an unsecured loan, you can borrow the sum over a fixed term, and you don’t need to put up any assets as security against the repayments, which in turn reduces risk. However, to achieve good interest rates then you typically need a strong credit score to be accepted for one.
Mortgages
Mortgages are loans specifically designed for buying property, where the home itself acts as collateral. Because the lender can claim ownership of the property if repayments aren’t made, mortgages usually offer lower interest rates and longer repayment terms compared to other loans.
Early loan repayment charges explained
An early repayment charge on a loan is a fee you may incur if you choose to repay earlier than you originally agreed. These early loan repayment charges are there to cover the interest that the lender has essentially ‘lost’ because you have decided to pay off your debt sooner than initially planned.
If you’re wondering how much an early repayment charge on a loan is, it usually depends on the type of loan you have taken out. And even then, it can vary depending on how early you repay and how much you pay.
It’s always a good idea to check your loan terms and conditions to understand any potential costs before you make any extra payments.
When you might pay
There are a few instances when you might find yourself having to pay an early repayment charge on your loan, which includes:
- Overpaying on a monthly mortgage cost
- Remortgaging to a lower/cheaper interest rate
- Making a large repayment during a fixed-rate period
- Switching lenders before the fixed-rate period is over
How much do early loan repayment charges cost?
This isn’t always a straightforward question to answer, as the cost of an early repayment charge on a loan can vary widely depending on the following factors:
- The lender
- The specific terms of your agreement
- The size of the early repayment
Early loan repayment charges are often calculated as a percentage of the outstanding balance or the amount that you’re repaying early. For some loans, this fee might be a fixed amount, while for others, it could be lower if you keep the loan for a shorter period.
In general, an early repayment charge on a loan could range anywhere from 1-2% to up to 5%, but this is all dependent on the factors mentioned earlier. Some lenders may offer a loan with no early repayment charge, but these are likely to come with higher interest rates to ensure that they have some level of protection.
Top tip: It’s important to review your loan documents carefully before you make any early or extra repayments, as this could have expensive consequences otherwise. Always weigh up the pros and cons before making any decision.
Consider an award-winning loan from Evolution Money today
Once you have a strong understanding of your loan and if an early repayment charge applies, you can make smarter decisions when managing your loan. At Evolution Money, we offer secured homeowner loans designed around you and your unique situation, not just your credit score. You can borrow between £5,000 and £100,000 with flexible repayment terms. Better yet, we’re here to support you every step of the way.
Why not check your eligibility with us today? It only takes a few minutes and, if we can help, one of our friendly advisors will guide you through your options.
For more useful tips and guides on managing your finances, visit our help and advice hub to find more articles that will enlighten and empower your journey to financial freedom.
Representative 28.96% APRC (Variable)
For a typical loan of £26,600 over 180 months with a variable interest rate of 19.56% per annum, your monthly repayments would be £484.00. This includes a Product Fee of £2,660.00 (10% of the loan amount) and a Lending Fee* of £763.00, bringing the total repayable amount to £87,030.00. Annual Interest Rates range between 11.7% to 46.5% (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 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.
