Question 1

How do overpayments reduce the cost of my loan?

Accepted Answer

Overpayments reduce your outstanding balance faster, which lowers the interest charged each month. This overpayment calculator shows exactly how much interest you can save and how quickly you'll pay off your loan. The reduced balance means significantly less total interest over the life of your loan.

Question 2

Do overpayments reduce my monthly payment or my loan term?

Accepted Answer

Overpayments typically reduce your loan term rather than your monthly payment. The regular payment amount stays the same, but because you're paying extra, the loan is paid off faster. Some UK lenders may allow you to recast the loan to reduce monthly payments instead, but this usually saves less interest overall.

Question 3

Are overpayments more effective earlier in the loan?

Accepted Answer

Yes, overpayments are most effective when made early in the loan term. This is because the outstanding balance is highest at the beginning, so more interest accrues. Reducing the balance early means you save interest on a larger amount over a longer period. Use this calculator to see the impact of early versus later overpayments.

Question 4

How does a lump-sum overpayment reduce interest?

Accepted Answer

A lump-sum overpayment immediately reduces your principal balance. This means all future interest calculations are based on a lower balance, resulting in less interest charged over the remaining life of the loan. The earlier you make the lump sum, the more interest you'll save.

Question 5

Do UK lenders charge fees for making overpayments?

Accepted Answer

Some UK lenders allow penalty-free overpayments, while others may apply a cap (often 10% per year) or early repayment charges. Always check your loan agreement before making extra payments. Many mortgages allow some level of overpayment without penalties.

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