Can I Make Early Repayments on a Secured Loan?

Written by Daniel Tannenbaum on August 25, 2021

Updated June 14, 2022

Yes, you can make early repayments on a secured loan. Making early repayments on any type of loan could help you bring down the total cost of borrowing. However, this is not always the case, and will be dependent upon your borrowing situation – e.g., the amount you borrowed, your interest rates and the fees charged for early repayments.

Making early repayments on a secured loan (like a mortgage) is known as an “overpayment”. Before deciding whether to make overpayments on your mortgage you should check the terms and conditions of your loan and discuss any further queries regarding this with your lender to help you make a more informed decision.


What Is a Loan Overpayment?

As the name suggests, a loan overpayment is when a borrower pays more money towards their loan than is required for their agreed-upon monthly repayments. A loan overpayment can help borrowers to clear their debt sooner and could also help to reduce how much interest the borrower is charged throughout the course of the loan term.

Benefits of loan overpayments:

  • Can help borrowers to clear their debt sooner than the initial agreed loan term
  • Could help reduce the amount of interest charged throughout the loan term

While some lenders allow borrowers to make overpayments on their loan, some might charge penalties or additional fees to do this. It’s important to check whether you’re able to make loan overpayments, and how much this could potentially cost you before deciding to go ahead with it.

If you make loan overpayments, you’ll still have to keep up with your usual monthly payments on top of this.




How Much Extra Can I Repay Each Month?

For mortgages in a discount or introductory fixed period, lenders will allow borrowers to make 10% of their mortgage balance in overpayments each year. For those on a tracker mortgage or past the introductory deal paying the standard variable rate (SVR) to the lender, you’ll typically be able to make as much of an overpayment as you like.

However, not all lenders will allow borrowers to make overpayments without some sort of fee. Charges that lenders apply to borrowers paying too much can range from 1% to 5% of the amount being overpaid.

Lenders will apply these penalties as they’d prefer for borrowers to carry out the mortgage deal initially agreed, expecting to earn a certain sum of interest from the deal. However, if you overpay, the lender could end up getting less than this expected sum of interest they initially budgeted for. Therefore, the fees and penalties are there to discourage this from happening.


Why Should I Make Early Repayments on a Secured Loan?

Borrowers typically make early repayments on their secured loan to lower the overall cost of their loan, helping them to clear their balance with the lender sooner than initially agreed.

Maybe you’ve run into some money or can afford larger repayments per month than you could when initially having taken out the loan. Whatever the reason, you could reduce the amount you owe the lender with overpayments.

Before making an overpayment, you should check to see whether you’d be charged for this, and by how much, to help you determine whether it would be worth it.


How Much Money Could I Save Making Overpayments?

Depending on how much you’re willing to make in overpayments, you could save thousands of pounds over the term of your mortgage, and years off the mortgage term itself. The amount of money could save will depend not only on how much you’d be willing to make in overpayments, but also how big your mortgage is.

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