Wondering what it means when a loan says ‘early repayment penalties apply’? Our guide explains all about charges on early loan repayments.
Comparing loans can bring up some confusing terms, such as ‘early repayment penalties apply’ or that ‘no early repayment penalties apply’. Read on to learn what early repayment penalties (or charges, or fees) are, and if it’s possible to avoid them.
The early repayment charge explained
Paying back a loan before the end of its term may seem like a great idea, but you need to be aware that a loan may have charges associated with paying off the balance early. To make things even more complicated, different loans use different names for the same charge. Common terms to look out for include:
- early repayment charge
- early repayment penalty
- early redemption fee
- redemption charge
- financial penalty
How much will I have to pay?
While there is no set amount, an early repayment charge is usually equivalent to one or two month’s interest. The earlier in the term you repay the loan, the higher the charge as the interest component of the loan repayment makes up a higher proportion of the repayment, the earlier in the loan term it is. An early repayment charge can add a considerable cost to your loan.
How can I avoid an early repayment charge?
If you think you will want to repay your loan before the end of its term, then you must check which loans apply a charge and which don’t. Please do not forget if you move an existing loan into a debt consolidation loan, you will still be liable for an early repayment penalty.
Compare early repayment loans with uSwitch
When you compare loans with uSwitch.com we’ll match the best loans with your particular requirements. Your results will highlight which loans have an early repayment charge and how much this is. Of course, you should also consider other factors when choosing your loan, like the Annual Percentage Rate (APR) and your monthly repayment.
Surely all the best loans have an early repayment charge
Not necessarily. Some of the cheapest loans available won’t charge you a penny for early loan repayment and we can help you find them with our loans calculator.