Can I Fully Pay Off My Secured Loan?

Yes, you can pay off the entirety of your secured loan early but you may be charged early repayment fees for doing so. The early repayment penalty could be one to two months loan interest though this varies across lending providers. Despite extra fees it can still make sense to repay the loan early as you may still save money on the overall interest accrued.

Repaying your secured loan early can be beneficial but it’s not always the best decision for all secured borrowers. You can check the true cost of early repayment by investigating the terms and conditions of your loan. A smart strategy would be to compare the cost of paying the loan back early relative to paying it back as per the original loan repayments plan.

There are several reasons why a borrower may choose to repay their secured loan early. One of the most common reasons would be the possible savings on the total loan amount. When a secured loan is completed, you are funded upfront and pay interest on the entire amount. There is a risk of taking out more money than needed, meaning you could be paying unnecessarily large interest fees. In this instance paying the loan back early may well save you money.

Frequently, borrowers need to repay the secured loan in full because they’re moving into a new property. It can be challenging to sell your existing property and move into a new one when there is a loan secured against it.

Homeowners who are looking to move house may incorrectly assume early repayment is their only option. Yet, some lenders may allow you to transfer the remainder of your secured loan onto your new property. The eligibility criteria for transferring the secured loan will be dependent on your affordability and the amount of equity owned in the new property.

Irrespective of your reasons for paying off the loan early, it’s wise to explore all of your available options before making any hasty decisions.

Do you save money repaying the secured loan early?

The cost of repaying your secured loan early will be determined by the specific terms of your loan agreement. Whilst it can be cheaper to repay your secured loan early, this isn’t guaranteed.  

Some borrowers will be charged an early repayment fee, often equating to one to two month interest payments. Whether it will be beneficial to repay early will depend on the nature of the early repayment terms. The early repayment fee could actually increase the total cost of the loan to the extent that it might not make sense to repay early.

If you do want to repay your loan early, you will need to contact your lending provider or broker. Make sure to enquire about all expenses associated with paying back the loan early, so you are aware of the true cost of early repayment, whether you have a first charge mortgage, a second charge mortgage (more information) or another secured loan altogether.

After processing all information with your lending provider, they will inform you of the full repayment amount required. All you have to do now is pay within the specified timeframe given.

The amount of money you could potentially save through early repayment depends on several factors including;

• The rate of interest on the loan
• The initial loan amount
• The amount of time you have remaining on the loan

Depending on these variables, you could save anywhere from hundreds to possibly thousands of pounds. If the loan amount is large and the corresponding interest rate is high, paying back the loan well ahead of the agreement repayment date is likely wise. It’s likely more expensive to repay early if low interest rates are being charged on a small nominal loan amount that has minimal time remaining on the loan. Make sure to analyse the nature of your secured loan carefully and make sure you fully understand the repercussions of repaying early.