Overpaying your loan—even by small amounts—can save you hundreds or thousands of pounds in interest. The earlier you start, the bigger the impact.
This guide shows exactly how much you can save with real UK examples you can model yourself.
How loan overpayments work
When you overpay a loan, the extra money goes directly toward reducing your principal balance. This lowers the amount of interest charged on future payments.
Standard payment: Part interest + part principal Overpayment: 100% principal reduction
The sooner you reduce your principal, the less interest accumulates over the loan’s lifetime.
Real example: £10,000 loan at 7.5% APR
Let’s see what happens when you overpay by different amounts on a £10,000 personal loan at 7.5% APR over 36 months.
No overpayment (baseline)
- Monthly payment: £311.89
- Total repaid: £11,228.04
- Total interest: £1,228.04
- Time to repay: 36 months
Overpaying £50/month
- Monthly payment: £361.89
- Total repaid: £11,007.81
- Total interest: £1,007.81
- Time to repay: 31 months
- Savings: £220.23 interest + 5 months faster
Overpaying £100/month
- Monthly payment: £411.89
- Total repaid: £10,823.23
- Total interest: £823.23
- Time to repay: 27 months
- Savings: £404.81 interest + 9 months faster
Overpaying £200/month
- Monthly payment: £511.89
- Total repaid: £10,534.22
- Total interest: £534.22
- Time to repay: 21 months
- Savings: £693.82 interest + 15 months faster
Even a modest £50/month overpayment saves over £220 and clears your debt 5 months early. Calculate your own savings based on your loan details.
Larger loan example: £25,000 at 6.9% APR
Higher loan amounts magnify the savings from overpayments.
Loan details: £25,000 at 6.9% APR over 60 months
- Standard monthly payment: £492.97
- Total interest (no overpayment): £4,578.20
Overpaying £100/month
- New monthly payment: £592.97
- Total interest: £3,614.60
- Time saved: 10 months
- Interest saved: £963.60
Overpaying £200/month
- New monthly payment: £692.97
- Total interest: £2,925.49
- Time saved: 17 months
- Interest saved: £1,652.71
Overpaying £300/month
- New monthly payment: £792.97
- Total interest: £2,426.28
- Time saved: 22 months
- Interest saved: £2,151.92
Overpaying £300/month saves over £2,150 in interest and clears the loan nearly 2 years early. Model different scenarios to find what works for your budget.
Monthly vs annual overpayments
Some lenders restrict how much you can overpay. Typical limits are:
- 10% of the outstanding balance per year (common)
- Unlimited monthly overpayments (less common)
- No overpayments without penalty (avoid these loans)
Monthly overpayments (preferred)
Making regular monthly overpayments reduces your balance faster because you’re constantly lowering the principal.
£100/month overpayment = £1,200/year applied gradually throughout the year.
Annual lump sum
If you’re limited to annual overpayments, make them as early in the year as possible. The sooner you reduce the principal, the more interest you save.
Always check your loan agreement for overpayment terms before committing.
When overpayments make the most impact
Early in the loan term
Overpaying in the first 1-2 years saves the most interest because your outstanding balance is highest.
Example: £15,000 loan at 7% APR over 48 months
Overpaying £100/month for the first 12 months only:
- Interest saved: £254
- Time saved: 3 months
Overpaying £100/month for the entire loan:
- Interest saved: £531
- Time saved: 8 months
Even short-term overpayments make a meaningful difference.
On larger balances
The bigger the loan, the bigger the savings. Overpayments on a £30,000 loan save far more interest than on a £5,000 loan at the same rate.
When rates are higher
If your APR is 10%, overpayments save more interest than on a 5% loan. Prioritise overpaying expensive debt first.
Overpayment strategies
1. Fixed monthly overpayment
Add a consistent amount to every payment. This is the simplest and most effective approach.
Set up your direct debit for the standard payment plus your chosen overpayment amount—then forget about it.
2. Tax refund or windfall
Use windfalls to make lump sum overpayments. Check your lender’s annual overpayment limit first.
3. Round up your payment
Round your payment to the nearest £50 or £100. If your payment is £347, pay £350 or £400 instead.
Small but consistent overpayments add up over time.
4. Redirect savings from cleared debt
Once you’ve paid off one loan or credit card, redirect that monthly payment toward another debt as an overpayment. This accelerates your debt-free timeline significantly.
Check for overpayment restrictions
Before overpaying, confirm:
- Overpayment limits: Can you overpay freely or is there a cap?
- Early repayment charges: Do fees apply if you clear the loan early?
- How to overpay: Can you increase your direct debit, or must you call the lender?
- Where the money goes: Ensure overpayments reduce principal, not prepay future interest.
Most UK personal loans allow 10% annual overpayments without penalty, but some charge fees for early repayment. Read your loan agreement or call your lender to confirm.
Overpayments vs saving
Should you overpay your loan or save the extra money instead?
Overpay if:
- Your loan interest rate is higher than your savings rate
- You’re paying 7%+ on a loan but earning 4% on savings
- You’ll save more by reducing debt than growing savings
Save if:
- You don’t have an emergency fund (build 3 months of expenses first)
- Your loan rate is very low (below 3-4%)
- You’ll need the cash soon for a known expense
Generally, overpaying debt at 7-12% APR saves more than earning 3-5% on savings. But always keep an emergency fund first.
Put it into practice
Overpaying your loan is one of the most effective ways to save money and become debt-free faster.
Whether you can spare £25, £50, or £200 per month:
- Calculate your overpayment savings with detailed breakdowns
- Compare loans to ensure you’re starting with the best rate
- See exactly how much time and interest you’ll save
For more practical finance guides, explore our guides.
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Put This Into Practice
Use our free calculators to model your own scenarios