Yes, you can repay your business loan early and very often, this will reduce the overall amount that you pay on your loan – but always check the terms and conditions since some lenders do not lower the fee or charge an early exit fee.
Repaying your loan earlier can be a great option if you come into some extra money. Usually, our lenders will not charge borrowers any fees for doing so.
Can I Repay a Loan Early?
Yes, it is always possible to repay your business loans early, and it usually does not cost extra to do. However, it is important to check the terms and conditions of your initial agreement, as a small number of lenders do take penalty fees for early repayment.
Some lenders may not claim to have early repayment charges but may have hidden fees, so it’s worth checking this out before making a decision.
How Much Does it Cost To Repay a Loan Early?
Some lenders will not charge you anything and reduce, but some may charge a fee of 2 months additional interest.
Early repayment charges will vary depending on your lender, and will be based on various factors. Since 2004, Consumer Credit Regulations state that lenders can charge consumers up to 2 months additional interest should they decide to make an early loan repayment.
Additionally, these laws state that if you have fewer than 12 months left on your monthly repayment plan, lenders can charge up to 28 days’ interest.
With that in mind, calculate that your early repayment charge will be one or two month’s worth of interest, depending on the length of your policy.
If the loan you have taken out is for more than £8000, other fees may apply including:
- 0.5% of the amount repaid early if the agreement has less than 12 months left
- 1% of the amount repaid early if the agreement has more than 12 months left
- Remaining interest before the rebate
Before agreeing to make any early repayment, it is always worth speaking to your lender.
How will I know if my Business Loan has an Early Repayment Charge?
To find out if your loan has an early repayment charge, you will need to check the terms and conditions from your original loan agreement.
Lenders vary widely in how upfront they are about early repayment charges. Some state their fees clearly from the start, while others build the cost into your loan less visibly. This isn’t always advertised, so it can be harder to spot without checking the small print.
The most reliable way to find out is to read your credit agreement. This sets out the full terms of your business loan, including exactly what happens if you choose to repay early, whether that’s a fixed early repayment fee, an interest-based charge, or no charge at all. You can check this before taking out a loan, when comparing lenders, or at any point during your loan term if you’re already borrowing and considering an early repayment.
Does Early Repayment Save Money on a Business Loan?
Yes, an early repayment can save you money on a business loan. The amount you save by repaying early depends on three things: your original loan amount, your interest rate, and how much of your loan term is left to run.
A loan that’s nearly paid off, with a low interest rate, won’t offer much saving from early repayment as most of the interest will have now already been paid.
A large loan balance with a high interest rate, repaid several years ahead of schedule, can save a business several thousand pounds in interest.
How Do I Repay a Business Loan Early?
To repay your loan in full:
- Contact your lender and ask for an early repayment (settlement) figure, which is the exact amount needed to close the loan in full.
- Get the figure in writing. Your lender is required to confirm it.
- Make the payment within 28 days of receiving the figure.
- If the 28 days pass without payment, request an updated figure and start again. Asking for a settlement figure doesn’t commit you to anything, so you’re free to change your mind.
To make an overpayment instead:
If you’d rather reduce your loan than clear it entirely, you can make an overpayment. This lowers your outstanding balance and the interest you’re charged over the remaining term, which could make your future monthly repayments cheaper.
- Check with your lender first. Not all business loans allow partial overpayments, and some charge an early repayment fee on overpayments even if full settlement is free.
- Tell your lender you’d like to make an overpayment.
- Pay the extra amount within the same 28-day window.
- Review your new repayment schedule. Your lender will recalculate it for the rest of the loan term.