Quick answer
Most private secured loans can be repaid before maturity, but terms vary. Some have no early repayment cost, while others charge a fee or a minimum interest period, and policies on refunding unused prepaid interest differ. To repay, request a payout figure, arrange funds from a sale or refinance, and the lender signs a discharge of mortgage or withdrawal of caveat at settlement.
Key points
- Check early repayment terms before signing
- Ask whether unused prepaid interest is refunded
- Request payout figures several business days ahead
- Discharges are usually completed at settlement
- Partial repayments can release individual properties
Why borrowers repay early
Private secured loans are designed to be temporary. Many borrowers repay before the end of the term because the exit arrives sooner than expected: a property sells quickly, a bank approves a refinance early, a large contract pays out or a tax refund lands. Repaying early reduces the cost of the loan and releases the security. But the savings depend on the loan terms, so it pays to understand them in advance.
Early repayment terms to check
Loan agreements handle early repayment in different ways. The main approaches are:
No early repayment cost. The borrower can repay at any time and only pays interest up to the repayment date, plus standard discharge costs.
Minimum interest period. Interest is payable for a minimum period, for example the first three months, even if the loan is repaid sooner. After that period, early repayment carries no extra cost.
Early repayment fee. A set fee or a percentage of the balance applies if the loan is repaid before a certain date.
Notice requirement. The borrower must give a set number of days’ notice before repaying.
None of these is unusual, but the differences matter if you expect to repay early. Ask about them before signing, as covered in our questions to ask before signing.
Prepaid interest and early repayment
When interest is prepaid, the lender deducts interest for some or all of the term from the advance at settlement. If you repay early, the question is whether any of that prepaid interest is refunded. Some lenders refund unused prepaid interest beyond a minimum period. Others retain it. This can make a significant difference to the true cost of a loan that is repaid early. Our guide to prepaid versus capitalised interest explains how each structure works.
With capitalised interest, the balance grows over time, so repaying early simply means a lower payout figure, subject to any minimum period.
Getting a payout figure
To repay, you or your representative request a payout figure from the lender. It shows the exact amount needed to repay the loan on a specific date, including:
- The principal balance
- Interest to the payout date, or any capitalised interest
- Any early repayment fee or minimum interest
- Discharge fees and the lender’s legal costs
- Any other amounts owing under the loan
Payout figures are usually valid for a specific date only, because interest accrues daily. If settlement moves, request an updated figure. Allow several business days for the lender to prepare it.
The discharge process
When the loan is repaid, the lender releases its security. For a registered mortgage, the lender signs a discharge of mortgage, which is lodged with the land registry. For a caveat, the lender signs a withdrawal of caveat. If there was a general security agreement over business assets, the lender also releases its registration on the Personal Property Securities Register.
In most refinances and sales, discharge happens at settlement. The incoming lender or the buyer’s representative pays the outgoing lender, and the discharge is lodged at the same moment, often through PEXA. See our guide to electronic settlement.
If you are repaying from your own funds rather than a refinance or sale, arrange with the lender how the funds will be paid and when the discharge will be lodged.
Partial repayments and releases
If your loan is secured over more than one property, you may be able to release one property after a partial repayment. The loan documents or the lender’s policy will set the release amount for each property. This is common with residual stock loans, where each unit is released as it sells, and with bridging loans secured over both an existing and a new property.
Partial repayments also reduce interest going forward. Check whether any fee applies and whether repayments must be in minimum amounts.
Timing your repayment
Interest is usually calculated daily, so repaying a few days earlier saves a little. More importantly, coordinate the payout date with your exit. If a refinance is settling on a particular day, make sure the payout figure is for that date and that the outgoing lender is ready to discharge. Delays at this stage can cost additional interest and, if maturity is close, risk default.
Illustrative example
A business owner takes a twelve-month bridging loan with a three-month minimum interest period to buy new premises before selling the old ones. The old premises sell in five months. His conveyancer requests a payout figure for the settlement date. Because the minimum interest period has passed, he pays interest only for the five months plus discharge costs. The lender’s mortgage is discharged at settlement through the electronic workspace.
This example is illustrative only.
Common causes of discharge delays
Discharges are usually routine, but delays happen. The most common causes are a payout request sent too late, a settlement date that moves without the lender being told, missing authority from all borrowers to release the figure, and outstanding amounts the borrower did not expect, such as unpaid legal costs. Give the lender plenty of notice, keep it informed of any date change and check the payout figure carefully when it arrives.
Getting started
If you are comparing loan options and expect to repay early, check your eligibility with no credit check. We will explain how early repayment typically works for the structures that suit your scenario.
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Frequently asked questions
Can I repay a private loan early?
In most cases, yes. Check the loan agreement for any minimum interest period, early repayment fee or notice requirement.
What is a minimum interest period?
It is a set period, such as the first few months, for which interest is payable even if the loan is repaid sooner. It protects the lender's set-up costs.
How long does a discharge take?
Preparing a payout figure and discharge typically takes a few business days. Registration happens at settlement, often electronically on the same day.
Do I pay a discharge fee?
Usually, yes. Discharge fees and the lender's legal costs for the discharge are common and should be included in the payout figure.
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