What is an early repayment penalty?
If you have a personal loan or mortgage and are looking to pay it back early, you may find that you have to pay a financial penalty. This is normally the equivalent to one or two month’s interest (though for mortgages, it could be a lot more if you took out a special deal with a ‘tie-in’ period).
There are many different names for this type of early repayment penalty as the different lenders use various terms to describe this fee or charge. However, what you need to look out for in the small print of your credit agreement (whether you have signed one and are in an existing agreement which you wish to repay or are looking to take out a loan) are terms such as:
· Early redemption charge (ERC)
· Early redemption clause
· Early repayment penalty
· Early redemption fee
· Financial penalty
· Early termination penalty
· Redemption charge/penalty
You should also note that the earlier in to the term of the loan you repay it, generally, the more the early repayment charge will be.
If you already have a personal loan or mortgage that you wish to repay, do read thoroughly the small print to ensure you know where you stand.
If you haven’t yet taken out a loan but are looking to do so, then do shop around. As well as looking at the APR you will be charged on the loan and other considerations, do check out whether there is a financial penalty if you repay the loan early as not all lenders do charge an early redemption fee.