Can I Pay Off My Loan Early?

What are the rules and options for repaying your loan early?

Updated: August 21, 2023
Matt Crabtree

Written By

Matt Crabtree


Whether you already have a personal loan or are considering applying for one, it's in your best interest to learn how simple it is to overpay and how much money you'll save. 

However, it may be unpleasant to work with UK lenders since they are not always transparent about fees and interest. The good news is that everyone must follow the same regulations.

Can I pay off my personal loan early?

Yes. In the United Kingdom, borrowers have the right to prepay (Saving Quickly Using Apps) all or part of their personal loans in accordance with the Consumer Credit Regulations 2004, albeit they may be subject to up to two months' worth of interest charges for doing so.

Even though it may be advertised that there is no early repayment penalty (ERC) if you pay off your loan early, you can expect to pay up to two months' interest on the amount you paid off early.

Lenders may or may not consider this extra interest to be an ERC. This implies that you may be in for a rude awakening if, upon requesting your final settlement amount, you discover that you haven't put away as much as you had hoped.

It makes financial sense to strive to pay off your debt as quickly as possible, whether you are able to do so because of careful budgeting and saving, an unexpected inheritance, or a lottery win. Since we can't predict the future, it's prudent to secure one's financial future while times are good.

Is there a prepayment penalty if I pay off my loan early?

This varies not just by lender but also by the remaining term of your loan:

Loans with up to 12 months remaining may incur interest charges of up to 28 days beginning on the day the borrower gives notice of intent to prepay. The interest accumulated since your previous payment would be added to this.

It is possible to be charged up to 58 days' interest for prepaying a debt that has more than 12 months remaining on it. Once again, you'll have to cover the interest that's accumulated since your last payment.

If the product charge is included in your monthly payments (as is common with P2P loans), you'll need to pay it off in full when you pay off the loan.

Contact your lender and ask for a “final settlement figure” if you're already in the middle of paying back a loan but want to know the precise amount.

How much money can I save by paying off my loan early?

The interest savings you'll realise by making a prepayment may vary from one lender to the next, but they're all bound by the above calculation. 

For instance, you generally won't save much if you have a low interest rate and few remaining payments. It's possible to save tens of thousands of dollars in interest if you borrow heavily and then pay off your loan early.

You can use our example below to get a rough sense of things…  

Paying-off early example… 

  • The loan amount is £10,000
  • With a 5-year loan duration
  • And a 2.9% interest rate 

You have decided to pay off the loan in full after the 6-month grace period has ended. You've paid back around £935 (plus about £140 in interest) of the initial £10,000 so far.

This leaves you with a balance of around £9,065 on the loan. Your lender adds an extra 58 days of interest since you still have more than a year to go on your loan. You'll end up paying around £45 in interest (APR) on top of the outstanding £9,065.

The total interest paid on the loan, assuming immediate repayment, comes to almost £10,185.

The whole cost of this loan, if it is allowed to mature as scheduled, would be about £10,755.

How can I pay off my loan early?

If you'd want to prepay your debt, here's what you need to do.

  1. Get in touch with the bank. Loan “early settlement amount” is what you want to call it. Although certain lenders may insist on a written confirmation, the majority of transactions may be initiated verbally or via online banking (as in the previous example).
  2. A lender must provide a payment amount and a deadline of at least 28 days (Top UK Savings Apps). You have made no commitments at this time and are free to proceed with the loan in accordance with the terms already agreed upon.
  3. Put down some cash. You've paid off your debt, so congrats!

What if I cancel my loan?

Perhaps; it's possible. There will be a “cooling off” period of 14 days after you sign the loan agreement, during which you may change your mind. And there's no need to justify your action. 

Lenders often want immediate repayment, although the law gives borrowers 30 days to pay back loans. Keep in mind that the lender may still charge you interest up to the point it gets the money back from you, even if you cancel the loan.


Our mission is to make the banking and lending process easier to understand. Curious about the lenders that impose penalties for prepayment? HSBC, Santander, Tesco Bank, Halifax, and Nationwide are just some of the UK banks and personal lending providers that offer unsecured loans with no early repayment costs. 

This may appear appealing, but early repayment may result in interest charges of up to two months. It is common practice to impose fees for prepayment on secured loans.

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