Early Repayment Charges | Paying Off a Loan Early | NatWest (2024)

FAQs

Early Repayment Charges | Paying Off a Loan Early | NatWest? ›

It's important to remember that if you repay your loan early, you will be charged an Early Repayment Fee. The amount you will be charged will be equal to 58 days' interest on the amount you repay early (28 days' interest if the period of the Loan is one year or less).

An early repayment charge is a fee that a lender will apply, in the event that you pay-off the remaining balance of your debt sooner than scheduled in the original agreement. They can apply to personal loans and mortgages, as well as other forms of borrowing, like car finance.

However, some lenders may charge a prepayment penalty fee for paying the loan off early. The prepayment penalty might be calculated as a percentage of your loan balance, or as an amount that reflects how much the lender would lose in interest if you repay the balance before the end of the loan term.

Some lenders may charge a fee if you pay off your personal loan before the term ends. Called a prepayment penalty, it's meant to protect the lender from losing revenue on interest. Before paying off a personal loan early, you might want to read the agreement or ask the lender about its prepayment terms.

An early repayment charge (ERC) is a penalty your provider may charge if you overpay on your mortgage by more than they allow, or pay off the whole loan too early. Many deals have a tie-in period, which is often longer than the deal period itself.

For example, if you had a 5 year fixed interest rate mortgage, you'd start off with a 5% ERC in year 1, which reduces to 4% in year 2 then 3% in year 3 and so on. So, if you're closer to the end of your mortgage term your early repayment charges could be lower.

Some lenders may charge a prepayment penalty of up to 2% of the loan's outstanding balance if you decide to pay off your loan ahead of schedule. Additionally, paying off your loan early will strip you of some of the credit benefits that come with making on-time monthly payments.

Paying an early repayment charge can make sense if: You can get a remortgage deal with a much lower monthly payment than your current one. If you find a deal with a rate that's lower than your current one , use our Ditch your fix calculator to check whether it's worth paying to switch.

For many kinds of new mortgages, the lender can't charge a prepayment penalty—a charge for paying off your mortgage early. If your lender can charge a prepayment penalty, it can only do so for the first three years of your loan and the amount of the penalty is capped.

Can you pay off a 72-month car loan early? Yes, you can pay off a 72- or 84-month auto loan early. Since these are long repayment terms, you could save considerable money by covering the interest related to a shorter period of time.

Why do you get penalized for paying off a loan early? ›

Prepayment penalties on auto loans are generally used to discourage you from paying off your loan early as it reduces the amount of interest a lender collects on your loan. As a result, your lender may include a penalty or fee if you pay it off early.

It's possible that you could see your credit scores drop after fulfilling your payment obligations on a loan or credit card debt. Paying off debt might lower your credit scores if removing the debt affects certain factors like your credit mix, the length of your credit history or your credit utilization ratio.

Most states allow lenders to impose a fee if borrowers pay off mortgages before a specific date – typically in the first three years after taking out a mortgage. While Alaska, Virginia, Iowa, Maryland, New Mexico, and Vermont have banned prepayment penalties, other states allow them with certain conditions.

You can pay off a personal loan faster by putting a lump sum of extra money toward the principal, paying extra each month, or making biweekly payments instead of monthly payments, among other strategies.

Repaying your mortgage early or paying over your overpayment allowance are some of the most common reasons an Early Repayment Charge (ERC) may apply. You'll find details of any ERC payable in your latest mortgage offer. Your annual mortgage statement will also show any applicable ERCs up to the date it is sent.