Key facts: Under the Consumer Credit Act you can settle a personal loan early at any time. The lender may charge at most about 58 days' interest (28 for shorter agreements) as compensation. You request a settlement figure — valid for 28 days — pay it, and the loan closes, reported as settled on your credit file.
Your legal right — and its price cap
Early settlement isn't a favour lenders grant; it's a statutory right. The permitted charge — up to two months' interest on the amount repaid — exists because lenders priced expecting a full term. In practice it's small against what you save: clearing three remaining years of a loan for the price of two months' interest is nearly always a winning trade if the money has no better use.
Getting and reading a settlement figure
Ask the lender (app, phone or letter) for an early settlement figure. It comprises: outstanding capital, interest accrued to the settlement date, plus the permitted compensation interest — minus any rebate of front-loaded interest. The figure holds for 28 days. Note it's usually less than remaining-payments-×-months — the difference is all the future interest you're escaping. Partial overpayments follow the same rules pro-rata and shrink either the term or the payment.
Is early payoff the best use of the money?
Compare the loan's APR against the alternatives, after tax. Clearing a loan is a guaranteed, tax-free return at that APR — hard to beat when the rate is high. It loses to: clearing more expensive debt first (cards, overdrafts — see the cost hierarchy), keeping a genuine emergency fund (payoff money is gone; re-borrowing later may cost more), and occasionally to near-0% loans where even savings interest beats the saving. Rate order, always.
What it does to your credit file
The account reports as settled — a positive, completed history that stays visible six years. Two mild wrinkles: closing your only instalment account slightly narrows your credit mix, and scores sometimes dip a few points briefly. Neither remotely outweighs the interest saved; lenders reading your file see a repaid loan, which is the point.
If you're clearing one loan to take another
Refinancing — settling early into a cheaper or consolidated loan — is where settlement maths matters most. A broker will net the 58-day charge against the new rate and tell you if the switch clears the bar. Find a loan broker through Nesto — free, no obligation.
Frequently asked questions
Are there penalties for paying off a loan early?
Only the capped compensation — up to ~58 days' interest on the amount repaid. There are no separate "exit fees" on regulated personal loans.
How do I get a settlement figure?
Request it from your lender; they must provide it, and it stays valid for 28 days.
Does early settlement help my credit score?
It closes the account as settled — positive history. Any short-term score dip is trivial next to the interest saved.
Can I part-repay instead of settling fully?
Yes — the same rules apply proportionally, reducing your balance and either the term or the monthly payment.