Your right to overpay
Under section 94 of the Consumer Credit Act 1974 you can repay part of a regulated loan early at any time. Tell the lender you’re making a partial early repayment; a payment that simply arrives early may just be held towards your next instalment. The overpayment comes off what you owe, so less interest builds up from then on.
Shorter term or lower payments
After an overpayment, the lender can either:
- keep your payment the same, so the loan ends sooner, or
- lower your payment, spreading what’s left over the months that remain, so the end date stays the same.
Ask which your lender does, and whether you can choose. Keeping the payment the same saves more interest, because the balance falls faster. Lowering the payment eases your budget each month.
Overpaying every month
Take £10,000 over 60 months at 6.9% APR: £196.56 a month and £1,793.43 of interest, worked out month by month. Paying an extra £100 every month:
- clears the loan in 38 payments instead of 60, the last one £135.82
- cuts the interest to £1,108.54
- saves £684.89 and 22 months
A lump sum
Instead, pay a one-off £2,000 on the same loan after payment 12:
| After the lump sum | Monthly payment | Interest saved |
|---|---|---|
| Shorten the term (48 payments) | £196.56 | £526.58 |
| Lower the payment (60 payments) | £148.95 | £285.10 |
The same £2,000 saves nearly twice as much when you keep paying £196.56. The earlier in the loan you overpay, the more it saves, because more of the interest is still to come.
If a lump sum would clear everything you owe, it counts as settling the loan, and the lender works out a settlement figure with up to 58 days’ interest. See how early loan settlement works.
The £8,000 rule
On a fixed-rate loan, if you repay more than £8,000 early in any 12 months, the lender can claim compensation under section 95A: up to 1% of the amount repaid early, or 0.5% if a year or less of the loan is left. It can never be more than the interest you save. Spreading overpayments so that no 12 months goes over £8,000 avoids it.
Before you overpay
- Keep an emergency fund. Money paid off a loan is hard to get back if you need it.
- Clear more expensive debt first. A credit card at 25% APR costs far more than a loan at 7%.
- Compare with savings. If your savings earn more after tax than the loan’s APR, overpaying may not be the best use of the money.
This is information, not advice. If you’re struggling with repayments, MoneyHelper has free, confidential help.