What happens if I pay my loan early?

If your circumstances have changed soon after having taken out a loan and you wish to repay your loan early you will have to ask the lending company for a “redemption” or “settlement” figure/statement- this will detail how much you have to pay to redeem the loan.

The lending company will permit you to repay the loan early at anytime. You will not (unless the loan only has a few months to run) be required to pay  all of the interest due over the remaining term of the agreement. The lending company may require you to pay part of the interest that you would have paid if the loan had run its full length.

The method of calculating the amount payable on early settlement differs between lending  companies and even between different loan agreements issued by the same lending company.

For example, some loan agreements will state that if the borrower wants to pay the loan off early a number of months interest will be added to the balance at the time of settlement. This is common especially on loans or mortgages for higher amounts. It is also very common, for companies who offer incentives to new borrowers, to include a clause that in the event of early redemption a charge of a number of months interest will be added to the outstanding balance on the loan