Can you pay a loan off quicker?

Miss_Fox_2

Hi
I have a loan which will end in October 2015, but next year, I think I'll be in a position where I can afford to pay more in order to pay it off quicker.

Part of me thinks the only way I can do that is if I get a new loan? As I'm pretty sure you get penalised for paying a loan off quicker? Or have I completely misunderstood early settlement charges?

Thanks
Liz

Tixy

It depends on when you took your loan out and what your loan agreement shows.

Newer loans the lender has to allow you to make overpayments, on older loans lenders didn't have to allow you to make overpayments, although some did.
Strictly the new legislation allows lenders are allowed to make a smalll % charge for partial overpayments but in practice mostly they don't do this (which would be clear in the loan agreement).

Early settlement charges (when paying off early in full) are almost always cheaper than continuing to pay the loan and letting it run to term.

Miss_Fox_2

Thank you!

I've spoken with my bank and it is possible but when I do this I'd get charged 58 days worth of interest on any amount re-paid early. Which sounds horrible but they explained I would still be saving interest as I would not need to pay the interest that would be generated for the remainder of the loan.

Trying to decide now if I'm better off paying bit by bit, or seeing where I am at the end of next year after saving as much as I can to try and clear it completely then.