Yes. You have the right to pay off a secured loan, also called a homeowner loan or second charge mortgage, in full or in part at any time. What it costs depends on the agreement: many lenders let you overpay by up to 10% of the balance each year for free, while settling in full during a fixed or discounted period commonly triggers an early repayment charge of 1% to 5% of the amount repaid.
- You can request a settlement figure from your lender at any point, and it must be provided promptly and in writing.
- Many secured loan lenders allow overpayments of up to 10% of the balance per year without any charge.
- Early repayment charges commonly apply during a fixed or discounted period and often fall away after it ends.
- Secured loans taken out since March 2016 are regulated under FCA mortgage rules, not the Consumer Credit Act.
- Overpaying a 15-year loan by even £50 a month can cut years off the term and thousands off the interest.
How do I pay off a secured loan early?
The first step is to ask your lender for a settlement figure. This is the exact amount needed to clear the loan on a given date, made up of the balance, interest to that date, any early repayment charge and any closing fee.
If you are settling because you are selling the property, your solicitor will request the figure and repay the loan from the sale proceeds, after the first mortgage has been cleared. If you are remortgaging and the new mortgage is large enough to absorb the secured loan, the same happens on completion, and the second charge is removed from the title. If you are paying from savings, you transfer the settlement amount and the lender closes the account and removes its charge.
Partial repayment works differently. You tell the lender how much you want to overpay, and it either reduces your monthly payment or, more usefully, keeps the payment the same and shortens the term. Ask which it does by default. Shortening the term saves more interest, because you carry on paying at the original rate against a smaller balance. The one thing to check before any overpayment is whether it falls within your free allowance, which is where early repayment charges come in.
What early repayment charges apply to secured loans?
An early repayment charge, or ERC, is a fee the lender charges if you repay more than the agreement allows during a set period. On secured loans it commonly applies during a fixed or discounted rate period and is expressed as a percentage of the amount repaid, commonly between 1% and 5%. Some lenders step it down each year; others charge a flat percentage throughout, and some products carry no early repayment charge at all, typically for a slightly higher rate.
Under the FCA's mortgage rules, which have governed second charge lending since March 2016, an early repayment charge has to be a reasonable pre-estimate of the lender's costs and must be disclosed clearly in the mortgage illustration you receive before the offer. The illustration shows the maximum cash amount, so you can compare products before you commit.
Most lenders also set an annual overpayment allowance, commonly 10% of the outstanding balance per year, that you can repay without any charge even during the fixed period. Used consistently, that allowance is often enough to clear a consolidation loan years early. If you expect to receive a lump sum, or think you may sell or remortgage within a few years, ask your broker to prioritise lenders with low or no early repayment charges.
How much does overpaying a secured loan save?
The following figures use the fixed illustrative rate for a secured loan and show why the term matters so much.
Illustrative rates: The rates in this example are fictional and used only to show how the numbers work. They are not an offer. Your actual rate may be lower or higher and will depend on your circumstances, your property and the lender. Consolidating debt over a longer term can mean you pay more interest overall, even if your monthly payment falls.
| Position | Monthly | Total repayable |
|---|---|---|
| Now: £12,000 on cards at 24.9% (minimum payments) plus an £8,000 personal loan at 12.9% over 5 years | £532 | Depends on how long the cards take to clear |
| New: £20,000 secured loan at 7.9% over 15 years, contractual payment | £190 | £34,196 |
| Same loan, paying £250 a month (£60 overpayment) with the term shortened | £250 | £28,497 over about 9.5 years |
Adding £60 a month to the contractual payment clears the loan around five and a half years early and saves about £5,700 in interest, assuming no early repayment charge applies to the overpayments. The monthly cost is still £282 lower than the £532 being paid before consolidating. This is why a qualified adviser will encourage you to choose the shortest term you can comfortably afford and overpay whenever money allows.
Is my secured loan regulated under the Consumer Credit Act or mortgage rules?
It depends on when you took it out. Secured loans agreed on or after 21 March 2016 are regulated mortgage contracts under the FCA's MCOB rules, the same framework as first charge mortgages. Under those rules the lender must give you a clear cost illustration, treat you fairly in difficulty, and apply early repayment charges only as disclosed.
Secured loans taken out before that date were mostly regulated under the Consumer Credit Act 1974, and the early settlement rules there are different. Under the Consumer Credit (Early Settlement) Regulations 2004, the lender calculates a rebate of interest when you settle early, and may charge up to an additional 28 days' interest on loans under a year, or 58 days' interest on longer ones, in place of a percentage charge. If you have an older loan, the lender's settlement figure should show this calculation, and Citizens Advice or MoneyHelper can help you check it.
Whichever regime applies, the loan is secured on your home and your home may be repossessed if you do not keep up the repayments. Paying it off early removes that risk, which is a strong reason to overpay when you can. Checking which lenders allow the most flexible overpayments will not affect your credit score.
Paying off a secured loan early is not always the best use of a lump sum. If the early repayment charge is at its highest point in the fixed period, waiting a year may save more than it costs, and if you have more expensive unsecured debt elsewhere, clearing that first usually makes more sense. It is also unwise to empty your savings entirely to settle a loan and leave no buffer, since a later missed payment would put your home at risk. If you are unsure how to prioritise, MoneyHelper, StepChange and Citizens Advice offer free, impartial advice.
Worried about debt? Get free advice first
If you're struggling, it's worth speaking to a free, impartial debt advice service before you borrow more. They don't sell anything and won't judge your situation.
- MoneyHelper: Free, impartial debt advice backed by government
- StepChange: The UK's largest free debt charity
- Citizens Advice: Free, confidential advice on debt and money
Checking your options with Equiclear will not affect your credit score.
Frequently asked questions
Is there a penalty for paying off a secured loan early?
Sometimes. During a fixed or discounted period many lenders charge an early repayment charge, commonly 1% to 5% of the amount repaid, and the offer document sets out the exact figure. After the fixed period ends there is often no charge, and some products carry none at any point.
How much can I overpay on a secured loan without a charge?
Many lenders allow overpayments of up to 10% of the outstanding balance each year without any early repayment charge, even during a fixed period. Some allow more and some allow unlimited overpayments. Check your offer, or ask the lender in writing before making a large overpayment.
How do I get a settlement figure for my secured loan?
Contact your lender by phone, online or in writing and ask for a settlement figure. It must be provided promptly and usually arrives within a few working days, valid for around 28 days. It shows the balance, interest to the settlement date, any early repayment charge and any closing fee.
Does paying off a secured loan early improve my credit score?
It is recorded as a settled account, which is positive, and it reduces your total secured borrowing. The effect on the score itself is usually modest. The bigger benefit is financial: no further interest, and your home is no longer security for that debt.
What happens to the charge on my property when the loan is repaid?
Once the lender receives the settlement amount it confirms the account is closed and applies to HM Land Registry to remove its charge from your title. This usually happens within a few weeks. You can check the register afterwards to confirm the second charge has gone.
Can I pay off a secured loan early if I remortgage?
Yes. If the new mortgage is large enough, the secured loan is repaid from it on completion and the second charge is removed. If not, the lender signs a deed of postponement to stay behind the new mortgage. Any early repayment charge applies either way.