Driver's finances › Loan overpayment

Overpaying the loan — term or instalment, and the fee refund

Overpaying is the simplest way to cut a loan's cost — and on early repayment the bank must also refund part of the fees.

Shorten the term or lower the instalment?

Shortening the term at the same instalment maximises the interest saving — mathematically the best option. Lowering the instalment at the same term improves monthly liquidity and your creditworthiness for future borrowing. The choice depends on the goal: minimum cost vs a safe budget.

The fee refund — Lexitor

On early repayment of a consumer loan the bank must proportionally refund upfront costs — including the commission fee — for the period by which you shortened the loan (art. 49 of the Consumer Credit Act, confirmed by the CJEU's Lexitor ruling, C‑383/18). The refund is due by law; if the bank does not pay it out itself, file a request.

Before you overpay — check two things

• An overpayment fee in the contract — consumer loans usually have none or a capped one, but exceptions exist in the first years.
• The alternative return — an overpayment „earns” the loan's interest rate; at a low rate compare it with a deposit or bonds.

FAQ

Which pays off more: a shorter term or a lower instalment?
Purely on cost — the shorter term, because the capital on which interest accrues falls faster. The lower instalment wins when monthly liquidity or creditworthiness for future financing is the priority.

Will the bank refund my fee on early repayment?
Yes, proportionally to the shortened period — for consumer credit this follows from art. 49 of the Act and the CJEU's Lexitor ruling (C-383/18). The refund covers upfront costs, including the commission.

In this cluster