Early Repayment Penalty

A fee you are sometimes required to make to a lender if you pay off a loan or mortgage before the scheduled term of the credit facility. Usually equivalent to one or two month’s interest. Typically, the earlier in the credit agreement you repay the loan, the higher the charge as the interest component of the loan repayment makes up a higher proportion of the repayment, the earlier in the loan term it is. An early repayment penalty can sometimes add a considerable cost to your loan.

Any such charges will be outlined in the summary box before you apply for a loan. If you feel that you are likely to pay off the outstanding balance early, factor in the cost of the repayment penalty when comparing loans from different lenders.

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