What is early repayment
Early repayment means overpaying (paying more than the contractual payment) or settling the whole balance before the end of the term. Because interest is charged on the outstanding balance, every overpayment reduces future interest.
Mortgages: ERCs and overpayment allowances
- Early repayment charges (ERCs) usually apply during a fixed or discounted deal, often tiered — for example 5% in year one, falling each year. They must reflect the lender’s costs and be set out in your ESIS and offer.
- Overpayment allowance. Most lenders let you overpay up to 10% of the balance each year during the deal without an ERC.
- After the deal ends, on the SVR or most trackers, you can usually overpay or repay in full without charges.
- Porting. Moving home? Many deals can be ported to a new property to avoid an ERC.
Loans and car finance: your statutory right
Under the Consumer Credit Act you have the right to settle a regulated loan, HP or PCP agreement early, in full or in part, at any time. Ask for a settlement figure: the lender must reduce the interest for early settlement.
- The lender may add interest for up to 28 days after your request.
- On fixed-rate agreements the lender can claim compensation of up to 1% of the amount repaid early (0.5% if less than a year remains), but only if you repay more than £8,000 in any 12 months.
- Within 14 days of signing a credit agreement you can withdraw, repaying the money plus interest for the days you had it.
Shorter term or lower payment?
With a mortgage overpayment, lenders either reduce your monthly payment or keep it the same so the term shortens. Keeping the payment and shortening the term saves the most interest. Ask your lender which applies and whether you can choose.
SMARTPRO lets you model one-off and regular overpayments and compare how much interest you save and when the loan ends.
When overpaying makes sense
Overpaying early in the term saves the most. Compare your mortgage rate with what your savings earn after tax: if savings pay more, keeping the cash may be better. Clear expensive debts like credit cards first, and keep an emergency fund.
How terms differ between lenders
| Term | How it can differ |
|---|---|
| ERC scale | Flat or tiered; length of the charge period. |
| Allowance | 10% a year, monthly limits, or unlimited on some trackers. |
| Effect of overpaying | Lower payment vs. shorter term; whether you choose. |
| Payment method | Online, by card, bank transfer or standing order. |
| Payment holidays | Some lenders let you borrow back overpayments. |
How to repay early the right way
- Check your offer or agreement for ERCs and allowances.
- For full settlement, request a written settlement figure.
- Track overpayments so you stay within the annual allowance.
- After repaying a mortgage, the lender removes its charge at the Land Registry; for car finance, confirm ownership has passed to you.
This material is for general information only, describes UK rules in force on the publication date, and is not financial, legal or tax advice. Rules, schemes and lenders’ terms change — always check your agreement, your lender’s current terms and official sources such as the FCA, MoneyHelper and GOV.UK.