Early Settlement question

darrendarren

Is it always the case that if you take a out a personal loan (for a car, home improvements, debt consolidation etc) is it always the case that the lender has to offer the option of an interest rebate if you pay off the loan early, and if so, are there rules as to what percentage (or whatever) of the interest they have to 'refund'?

Jami74

Usually you only pay interest on what you owe, therefore if you pay the loan off early then you'll pay less interest.

If you had paid all the interest up front and then settled your loan early then they would owe you some of the interest back, but usually interest is paid as you go along so there's no rebate to be paid when you settle early, only interest that you haven't paid yet that you now don't need to pay.

DrEskimo

As above, it is not a rebate, but rather a saving on what you would have otherwise paid had you not settled early.

They are entitled to charge an early settlement fee though, which can be up to 2-months of interest.

Ebe_Scrooge

As above, you don't get a "rebate" as such, but you'll pay less interest overall because you've borrowed the money for a shorter period of time.  Worth noting that "front-loading" of interest has not been allowed for many years now.  As noted by DrEskimo, they are allowed to charge up to 2 months' interest as an early settlement fee.