Paying off a loan early

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When you enter into an unsecured loan, you agree to pay back the money over a set period, typically with monthly payments. But you do have the option to make an early loan repayment.

This guide will cover all the important information you need to know before paying off a loan early.


Why make an early loan repayment?

There are several reasons why someone may want to pay off a loan early. Whether this is the right thing to do will depend on your individual circumstances.

Many people set reducing or clearing current debts as a financial goal, so will inevitably consider paying off a loan early if they have the funds to do so. For example, some people who come into money (e.g. receive an inheritance) but have an outstanding loan may pay off their loan to become debt-free or reduce the amount they owe.

Plus, in some cases paying back early could save you money by paying less interest overall.

But you need to be aware of early repayment charges and always review your credit agreement or speak to your lender to get a clear idea of what it could cost you.



What is an early repayment charge?

An early repayment charge is a fee you may be charged if you pay off your loan prematurely.

The cost of an early repayment charge will vary depending on the type of loan and the lender you use, but this is usually calculated based on how much interest you would have paid on the money you borrowed in a set amount of time minus any allowable rebate.

It can seem confusing that you have to pay an extra charge for paying back early, but this is because lenders agree to lend based on interest rates that are calculated according to the full period.

Before you pay back your loan early, you should check what your early repayment charge will be.

At Shawbrook, you have the right to repay all or part of your outstanding balance at any time. Simply get in touch with us and we’ll let you know how making early payments will impact what you owe. If you decide to make a partial repayment, we’ll reduce your loan period to reflect this. If you want to pay back in full, you may have to pay back up to 58 days’ interest on your outstanding balance on top of the principal amount you have borrowed.

Whichever option you choose, you will generally pay back less interest than if you had let the agreement run its full course. And this will be made clear once you receive a settlement figure if you choose to settle your loan early in full.


What is a settlement figure?

A settlement figure is the outstanding loan amount (the money you still owe), plus any interest and charges (including the early repayment charge).

A lender will calculate your settlement figure based on the Consumer Credit (Early Settlement) Regulations 2004. Typically, a lender will add up your remaining monthly instalments and deduct an amount to account for future interest that you’ll no longer need to pay because you’re settling early. They’ll also take into account any charges or outstanding arrears on your agreement and will add this to your settlement figure.

When you receive a settlement figure, there will also be details around the settlement's date and how long this figure is valid.

With Shawbrook, settlement figures are valid for 30 days from the date you requested the initial settlement figure. While the calculations are complex, the settlement figure you will have to pay will include no more than 58 days’ worth of interest calculated on the balance outstanding at the time when we provide you with the settlement figure.

Remember that requesting a settlement figure doesn’t mean you’re obligated to pay back your loan early. You can use this figure to decide whether it’s worth paying the early repayment charge and settling the debt.


How do I pay off my loan early with Shawbrook?

If you want to pay off your Shawbrook loan early, you will need to tell us by calling us on 0345 650 6290.

Once we’ve got back to you with a settlement figure, you can decide whether you still want to go ahead with paying off your loan early.

Some websites may offer an early loan repayment calculator, but these are not always accurate. That’s why we recommend getting in touch with your lender for precise settlement figure.

You can find more information about Shawbrook’s policy on our early repayment FAQ page.