Overpayment-friendly Personal loans cost guide: typical prices & fees in the UK

No-nonsense guide to slashing loan interest

Look, no one likes paying more interest than they have to. If you can afford to overpay your personal loan, you can cut interest and finish the debt sooner. Here’s the simple, UK-specific playbook.

Overpay early, overpay smart - and keep more money in your pocket.

Who should use this

If you’ve got an unsecured personal loan in the UK and a bit of spare cash most months, this guide is for you. It’s also handy if you’re shopping for a new loan and want overpayment flexibility from day one.

The basics you need to know

Overpayments are extra payments on top of your usual monthly instalment. For unsecured personal loans taken out after 1 February 2011, UK law lets you make partial overpayments up to £8,000 in any rolling 12-month period without a charge. Go over that and your lender may charge a small fee if they incur a cost, usually one to two months’ interest.

Overpaying reduces your loan balance, which means less interest is charged going forward. Some lenders let you choose what happens next: either your monthly payment drops while the term stays similar, or your monthly payment stays the same and the term shrinks. If your goal is to be debt-free faster, pick term reduction.

You also have a legal right to repay early in full. Ask your lender for a settlement figure and they must show any fees and the outstanding balance. Fees for full early settlement typically equal one to two months’ interest and are explained in your agreement.

Timing matters. Overpaying earlier in the term saves more because interest is front-loaded against a larger balance. Even modest extra payments in year one can shave hundreds of pounds off total costs.

Your overpayment choices

Option 1 - Regular small top-ups

• Add £20-£200 per month via your banking app.
• Best for building the habit without straining your budget.
• Usually shortens the term if you keep the monthly payment fixed.

Option 2 - Occasional lump sums

• Tax rebate, bonus, side-hustle cash - throw it at the balance.
• Watch the £8,000 fee-free partial overpayment cap within 12 months.
• Ask the lender to apply it to reduce the term if allowed.

Option 3 - Full early settlement

• Clear the whole loan in one go.
• Request a settlement figure first to see any fee.
• Run the numbers - the interest saved usually outweighs a 1-2 months’ interest fee if you are early in the term.

Option 4 - Pick an overpayment-friendly lender

• Some big UK names allow unlimited overpayments with no penalty.
• Policies vary by product and date taken, so always confirm.

If your lender lets you choose, pick term reduction for faster freedom.

What it costs and what you save

• Partial overpayments up to £8,000 in 12 months are typically fee-free for post-2011 unsecured loans.
• Above £8,000, or for full settlement, expect a fee of around one to two months’ interest if the lender has a cost.
• The earlier you overpay, the bigger the interest saving. Clearing a sizeable chunk after year one can save hundreds compared with waiting until year two or three.
• Some lenders charge nothing for overpayments or early settlement. Others follow the standard interest-based fee. Your agreement rules.

In short: small cost risk, big potential gain. Always weigh the fee against the interest you will no longer pay.

Can you apply - and what type of loan matters

• Unsecured personal loans - Covered by UK consumer credit law. You have the right to early partial or full repayment. Fee rules are clear, including the £8,000 annual partial overpayment threshold.
• Secured or second-charge loans - Different rules. Some lenders allow unlimited overpayments, others limit or charge. Read the specific product terms.
• Older loans taken out before February 2011 - May have different conditions. Check your original paperwork.
• Fixed-rate vs variable - Most personal loans are fixed. Overpayment impact is straightforward. Variable products may behave differently.

If in doubt, ask your lender for written confirmation of their overpayment rules before sending money.

Simple steps to get it done

1. Check your loan agreement for overpayment terms.
2. Decide term reduction or lower monthly payments.
3. Confirm any fee with a quick call or chat.
4. Make the payment online, app, phone, or transfer.
5. Keep proof of payment and lender confirmation.
6. Track the new balance and adjusted schedule.
7. Repeat small top-ups to maximise savings.

Upsides and trade-offs

Pros:

• Pay less interest overall.
• Become debt-free sooner.
• Flexible payment methods - app, online, phone, transfer.
• Option to lower monthly outgoings if needed.

Cons:

• Possible early settlement fee for full payoff.
• Overpaying above £8,000 in 12 months may trigger a charge.
• Cash tied up in the loan - less for emergencies.
• Some lenders require notice to change your monthly payment.

Keep an emergency buffer. Overpay the rest.

Watch-outs before you hit pay

• Check you are within the £8,000 fee-free partial overpayment window for the last 12 months.
• Ask whether your payment reduces the term or the monthly instalment - set your preference.
• Get a settlement figure before full repayment so you know the exact cost today.
• Do not overpay at the expense of high-interest debts like credit cards - clear those first.
• Make sure your overpayment is affordable and consistent with your budget.

Other ways to trim costs

• Balance transfer or lower-rate consolidation loan - can simplify and reduce interest, but watch fees and total cost over the new term.
• Ask your lender for a temporary payment reduction rather than overpaying if cash is tight.
• Switch to an overpayment-friendly lender next time you borrow - check the policy before applying.
• Build a savings buffer alongside overpayments to avoid new borrowing.

Lender policies at a glance

Policies vary by product and when you took the loan. Always verify.

Quick answers to common questions

• Can my lender refuse an overpayment? No for unsecured personal loans - you have a right to repay early. They can apply fees within the rules.
• Will my direct debit change automatically? Not always. If you want the term cut instead of the monthly payment lowered, you may need to tell them.
• How do I make an overpayment? Usually via online banking, mobile app, phone payment or bank transfer. Ask for the correct reference.
• Is it better to overpay early or late? Early. It saves more interest because the balance is higher at the start.
• What if I go over £8,000 in 12 months? You might be charged up to one to two months’ interest on the excess if the lender incurs a cost.
• Do all lenders charge settlement fees? No. Many do not for partial overpayments and some waive for full settlement. Check your terms.

Ready to move - here is a simple plan

• Check your agreement, choose term reduction, and make a small test overpayment this month. Then set a calendar reminder to repeat. If you are shopping around, compare lenders that allow unlimited or fee-free overpayments so you are not boxed in later.

Small print we have to mention

This guide is general information, not financial advice. Overpayments must be affordable. Always read your loan agreement and ask your lender for a settlement figure before paying in full. Terms differ for secured loans and older agreements. If unsure, speak to a qualified adviser.