Does repaying in full early stop all future

2 min read

Reducing-balance = stopsNo more interest accrues

Flat-rate = maybe notTotal often fixed

ERC can offsetCheck the charge

Settlement figureThe real number

On a reducing-balance loan

On a reducing-balance loan, interest accrues on the outstanding balance, so clearing that balance stops interest accruing from the settlement date onward. You skip all the future interest your remaining scheduled payments would have included — which is exactly why the settlement figure is lower than the sum of your remaining payments. This is the case where early repayment genuinely stops future interest.

On a flat-rate or factor-rate product

It is different on a flat-rate or factor-rate loan, where the total interest is fixed at the outset on the original amount rather than accruing on a falling balance. Repaying early may not stop or reduce that fixed total unless the agreement includes an explicit rebate. So on these products, early settlement can free you from the facility without saving the interest you might expect. Always check which structure you have. See does repaying early save money.

The charge that can offset it

Even on a reducing-balance loan, an early repayment charge can claw back some of the interest you save. The net benefit is the future interest avoided minus any charge. Get the exact settlement figure, which includes any charge, and compare it to your remaining payments to see the true saving before deciding. See settling in full.

Get a settlement figure, check the net saving on the repayment calculator, then decide.

Frequently asked questions

If I settle early, do I still pay the interest on my remaining payments?

On a reducing-balance loan, no — settling stops interest accruing from the settlement date, so you skip the future interest built into your remaining scheduled payments. You pay the outstanding balance plus interest to the settlement date, plus any early repayment charge. That is why the settlement figure is lower than the total of the payments you would otherwise have made.

Why doesn't early settlement save much on my loan?

Most likely because it is a flat-rate or factor-rate product, where the total interest is fixed at outset rather than accruing on a falling balance — so repaying early doesn't reduce it unless a rebate is written in. Alternatively, an early repayment charge may be offsetting the saving. Check your product structure and the settlement figure to see exactly why the saving is smaller than expected.