Can I Repay My Payday Loan Early?

Yes, you can repay your payday loan early. In fact, doing so can save you money on interest and may even benefit your credit score. 

Most UK payday lenders allow early repayment and under Financial Conduct Authority (FCA) rules, you should only be charged interest for the days you actually borrow the money, not the full term of the loan. This means the sooner you repay, the less it costs.

Why Repay a Payday Loan Early?

The main appeal of paying off a payday loan early is that it reduces the overall cost. Since payday loans come with 0.8% interest rates per day in the UK, every extra day you hold onto the loan adds to the total you owe. 

Repaying early limits the amount of interest accrued and helps you avoid spiralling costs. In fact, according to consumer research 41% of borrowers who paid off their payday loans early in 2022 said their main reason was to avoid growing interest charges.

Not only does early repayment save you money, but it also shows lenders you are managing your debt responsibly. If reported to credit agencies, this can be a positive mark on your credit report. Timely or early repayments indicate lower risk to future lenders, which may improve your chances of accessing better credit options down the line.

How Much Do You Save My Repaying A Payday Loan Early?

If you took out a £400 loan with The One Stop Money Shop and this was originally for 12 months (total of £780), but you decided to pay early at 6 months (total of £690). Based on an APR of 295.60%, this would result in a saving £90.00.

How Do I Repay My Payday Loan Early?

The process is usually straightforward. Contact your lender, either online or over the phone and request an early settlement figure. This will include the outstanding principal and interest up to the date you plan to repay. 

You have the right to this information, and it should be provided clearly and promptly. Once you have received the figure and made the payment, ask for written confirmation that the loan is settled in full to avoid any misunderstanding or future charges.

According to FCA data, only 4% of payday loan borrowers pay exactly on the due date, most either repay early or more worryingly, roll the loan over into a new agreement. 

When Does Repaying a Payday Loan Early Not Make Sense?

Due to payday loan regulation stating that interest can not be double the original loan amount, you may find that in some cases that the loan costs the same for longer periods.

For instance, if you borrow £500 with The One Stop Money Shop over 6 months and 12 months, the difference in repaying early is less than £10. It is therefore important to weigh up the pros and cons of repaying early and the overall saving.

What Do I Need To Consider With Early Loan Repayment?

While early repayment is a smart move financially, it is also a good time to reflect on your wider financial habits. A common pitfall is the temptation to take out another loan soon after repaying the first one. 

The Money Advice Trust found that over 20% of payday loan users reborrow within a month of clearing a previous loan, often restarting the same debt cycle they were trying to escape. If you are repaying early only to borrow again days later, it may be worth pausing and reassessing your finances or seeking support from a free debt advice charity.

You should also be sure to check the small print of your loan agreement. Although most lenders will not charge a penalty for early repayment, some may include small admin fees. These must be stated upfront and if they seem unclear, you have the right to ask for a breakdown of the costs before you settle.

Is Early Loan Repayment Right For Everyone?

In general, if you can afford to repay your payday loan early, it is almost always worth doing. However, it is important not to drain your savings or fall behind on essential bills just to pay a loan off early. Balance your priorities as paying off debts is sensible, but not if it leaves you vulnerable elsewhere.

If early repayment is possible without financial strain, take the opportunity. It reduces your debt, lowers the total interest and could even improve how lenders view your credit behaviour. Just be mindful of why you needed the loan in the first place and whether your income and spending habits need adjusting to avoid needing another one.

Final Thoughts

Repaying your payday loan early is not only allowed, it is encouraged. You will save money on interest, possibly improve your credit profile and reduce the stress that can come with short term debt. Just make sure that you find out about any early repayment fees if applicable. 

You should also be mindful of the urge to borrow again. Early repayment should be seen as a stepping stone to stronger financial health, not a reset button for repeat borrowing.

Taking control of your repayments is one of the best ways to stay financially stable. If you can repay early, do it as you will thank yourself later!