Paying off a loan early might sound like a great idea — and in many cases, it is. You can save on interest and feel the relief of being debt-free sooner. But before you make that final payment, it’s important to check whether your lender charges what’s called an early repayment charge (ERC). Here’s a simple guide to help you understand how early loan repayment works, what it might cost, and how to decide if it’s right for you.
Some lenders charge a fee if you want to clear your loan before the agreed end date. This is called an early repayment charge. The fee is usually worked out as a percentage of the remaining loan balance — and it’s designed to make up for the interest the lender expected to earn. For example, if you’ve borrowed £10,000 and still owe £5,000, an ERC might be 1–2 months’ worth of interest on that balance.
Lenders make money through interest payments. When you repay early, they lose out on some of that income. An ERC helps them recover some of the shortfall. That doesn’t mean early loan repayment isn’t worth it — but it’s why you should always check the small print first.
Yes, often you can. Even with an ERC, clearing your loan early may mean you pay less overall. For example:
If your ERC is equal to two months’ interest, but you’re cutting 12 months off your loan term, you could still save 10 months of interest.
The longer the time left on your loan, the more likely you’ll benefit from paying it off early.
Use your ClearScore account to compare loan options and check the terms before you commit. You can explore your loan offers and see what might suit you best.
Yes — many lenders allow you to make extra payments towards your loan without fully paying it off. This is sometimes capped at a certain percentage of the outstanding balance each year (often 10%). Overpayments can reduce the total interest you pay, and shorten your loan term, without triggering a full ERC. Things to check before making an early loan repayment
Does my lender charge an ERC?
How much would it be in my case?
How much interest will I save by repaying now?
Do I have other debts with higher interest rates I should focus on first? If you’re juggling multiple repayments, a debt consolidation loan could also be an option. It lets you combine what you owe into one manageable monthly payment, sometimes at a lower interest rate
Early loan repayment can be a smart move — it gives you peace of mind and often saves you money. But it’s always worth weighing up the ERC against the potential savings. At ClearScore, we’ll always be upfront about your options. When you search for loans, you’ll see your eligibility and can check your credit score for free to understand what’s available to you