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Early Repayment Charges – How to Avoid Them - Fleximize

How to Avoid Early Repayment Charges

If you’re taking out a business loan, you may wish to repay it early. But how can you do it without incurring a fee?

By Kate Josselyn

One of the main benefits of business loans is that they allow companies to spread significant costs across several smaller payments. Most lenders give businesses a choice of how many months or years they wish to repay a loan over, with a longer term usually translating to lower monthly payments. By avoiding large one-off costs, a business can look after its cash flow while continuing to grow.

That being said, if your company's financial position changes during the term of a loan, you may wish to pay it off early. Not all lenders give businesses the option to repay early, and those that do will sometimes charge a loan repayment charge, so it’s worth checking this before agreeing to the loan.

Early repayment – key considerations

Clearing your debt early may improve your chances of securing additional finance in the future, possibly at a lower interest rate. Some lenders, including Fleximize, will even reward companies for repaying early, recalculating the interest so that it is only paid for the time they had the loan.

However, many lenders don’t provide detailed information on their websites or promotional materials. For example, a lender might say it offers penalty-free early repayments, but it also won’t recalculate the interest or apply a discount to the total amount repayable, meaning there’s no real value in repaying early.

An FAQs page may provide additional detail, but the small print in a lender’s loan agreements should include a clause outlining its full early repayment policy. Alternatively, you could ask the lender to confirm its policy in an email or over the phone.

How to settle a loan early

In most cases, you will need to request an early settlement quote from your lender before paying off the loan in full. This will usually include the following:

This quote is usually valid for a limited period of time, as specified by your lender. This gives you a chance to consider whether you still want to proceed with the early repayment.

How to avoid early repayment charges on a loan

If you’re tied into a loan with a lender that charges for early repayment, the only way to avoid a charge is to pay off the loan according to the agreed schedule. However, if you’re yet to apply for funding and want a flexible arrangement, make sure you look for lenders that offer penalty-free early repayments and will reduce the interest owed if you decide to settle early.

Overpayments are another option

An alternative to repaying your loan in full is to pay off a chunk of it with a lump sum. This can be ideal for companies that have extra cash available but aren’t in a position to settle the total amount early. Some lenders allow businesses to make overpayments free of charge and will recalculate your balance so that all subsequent repayments are lower or, with Fleximize, the loan finishes ahead of schedule.

Your common questions answered

An early repayment charge is a fee incurred for paying off your loan before the end date you agreed on with the lender. It’s a way for the lender to make up for the interest they lose.

If you decide to pay off your loan early and your loan agreement says there’s a fee for doing this, you'll have to pay an early repayment charge. Check your loan terms to see if this applies.

An early repayment charge can be a percentage of what you still owe on the loan or a certain amount of months’ interest. For example, it might be 1-2% of the remaining balance or three months’ worth of interest.

Yes, some lenders offer loans without early repayment charges. Look for lenders who say they have penalty-free early repayments and check that they will adjust the interest if you pay off early. Always read the details or ask the lender.

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