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).

Prepayment penalties can be charged in a variety of ways. They may be calculated as a percentage of the remaining loan amount — typically 1 to 2 percent. The penalty could be equal to a certain number of months' interest. Or some lenders may charge a flat fee.

You can't avoid paying the ERC unless you wait until your mortgage deal ends and no fee applies. However, if the ERC is lower than the interest rate on your current deal or if you're switching to a cheaper mortgage, you may find that over time the lower interest rate outweighs the cost of the ERC.

In most cases, paying off a loan early can save money, but check first to make sure prepayment penalties, precomputed interest or tax issues don't neutralize this advantage. Paying off credit cards and high-interest personal loans should come first. This will save money and will almost always improve your credit score.

Some lenders may waive the early repayment charge if you've only got a few months left on your mortgage deal. However, this is often only the case if you take out a new mortgage with your current lender – known as a product transfer.

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.

Yes, paying off a personal loan early could temporarily have a negative impact on your credit scores. But any dip in your credit scores will likely be temporary and minor. And it might be worth balancing that risk against the possible benefits of paying off your personal loan early.

Loan providers must allow you to pay back a personal loan early in full, but they can charge you an early repayment charge (ERC). Early repayment charges vary, but typically you can expect to pay the equivalent of one to two months' interest.

How do I calculate my early repayment charge? ›

The ERC is calculated as 1% of the amount repaid early, above any annual overpayment allowance, for each remaining year of the period during which the ERC applies, reducing on a daily basis. However, (after taking your allowance into account) a maximum 5% of your overpayment could be charged.

An Early Repayment Adjustment is a fee charged when you create a “break event” any time before the end of your fixed rate period on your loan.

Banks and other lenders are often motivated to renegotiate because that's generally a preferable option to foreclosure, due to the costs and risks involved in that process and the fact that the renegotiated loan will provide them with at least some cash flow.

"In many cases, paying off a personal loan early will save the borrower money in interest," says Thomas Nitzsche, senior director of media and brand at Money Management International, a nonprofit credit counseling agency. With loan payments out of the way, you free up money to pad your monthly budget.

Paying Off Your Mortgage Early

You owe less in interest as you pay down your principal, which is the amount of money you originally borrowed. At the end of your loan, a much larger percentage of your payment goes toward principal. You can apply extra payments directly to the principal balance of your mortgage.

If you want to pay off your personal loan early, you can do so any time and OneMain will not charge you a prepayment fee.

You can always try to negotiate having it removed from the contract; ask your lender if they will waive the fee. If they agree, make sure you have it in writing. You can also ask your lender for a quote without the penalty, but remember, that might increase your interest rate.

Your new mortgage application must be completed prior to redeeming your current mortgage. When you move home you can take your existing mortgage balance at your existing rate and there is no need to pay an early repayment charge.

Paying off the loan early can put you in a situation where you must pay a prepayment penalty, potentially undoing any money you'd save on interest, and it can also impact your credit history.

The purpose of a prepayment charge is to compensate the lender for the economic costs it incurs when a prepayment amount exceeds the prepayment privileges permitted under the mortgage.