Worked Examples and Checklists
Paying off a personal loan early: extra repayments, lump sums and early repayment fees
How much you save by paying off an Australian personal loan early, worked examples of extra repayments and a lump sum, how early repayment fees work and how to get a payout figure.
Paying off a personal loan early saves the interest you would have paid on the balance for the remaining months, minus any early repayment fee or break cost. On an illustrative $20,000, five-year loan at 11.5%, adding $100 a month saves about $1,570 in interest and finishes the loan 14 months early; paying the loan out in full after three years saves about $1,170 of future interest, less any exit fee. Variable-rate loans often allow early payout and extra repayments without a fee; fixed-rate loans may charge one. Always ask for a written payout figure before you pay.
This guide is part of the personal loan requirements guide. Figures are illustrative.
Starting point
Loan: $20,000 at 11.5% over five years, repayment about $439.85 a month, total interest about $6,391. See the repayments worked example for how this is calculated.
Option 1: extra $100 a month
| Standard | With $100 extra each month | |
|---|---|---|
| Monthly payment | $439.85 | $539.85 |
| Months to repay | 60 | 46 |
| Total interest | about $6,391 | about $4,823 |
| Interest saved | – | about $1,568 |
Every extra dollar goes straight off the balance, so interest is charged on a smaller amount from the next month on. Check that your loan allows extra repayments and whether there is a yearly cap on fixed loans.
Option 2: a $5,000 lump sum after two years
| Standard | $5,000 lump sum at month 24 | |
|---|---|---|
| Months to repay | 60 | 46 |
| Total interest | about $6,391 | about $4,803 |
| Interest saved | – | about $1,588 |
In this example, a $5,000 lump sum at two years and $100 extra each month from the start save a similar amount. The earlier money goes in, the more it saves.
Option 3: paying out in full
After 36 months, the balance is about $9,390. Continuing to the end would cost about $10,556 in remaining repayments, of which about $1,166 is interest. Paying out now saves that interest. If the loan has a $300 early repayment fee, the net saving is about $866.
| Early payout scenario (after 3 years) | Amount |
|---|---|
| Balance to pay out | about $9,390 |
| Future interest avoided | about $1,166 |
| Early repayment fee (if any, illustrative) | −$300 |
| Net saving | about $866 |
If the money for the payout would otherwise sit in a savings account earning interest, or would leave you without an emergency buffer, compare the options before deciding.
How early repayment fees work
| Fee type | How it is calculated | Common on |
|---|---|---|
| Flat early repayment fee | A fixed dollar amount, sometimes only in the first years | Fixed-rate loans |
| Sliding fee | Falls over time, for example lower in later years | Fixed-rate loans |
| Break cost | Based on the difference between your fixed rate and current wholesale rates for the remaining term | Some fixed-rate loans |
| Admin or payout fee | A small fee for processing the payout | Some variable and fixed loans |
Under section 78 of the National Credit Code, a court can annul or reduce an early termination or prepayment fee that is unconscionable, which ASIC's guidance explains in terms of whether the fee exceeds a reasonable estimate of the lender's loss from early repayment. For small amount credit contracts, the lender cannot charge monthly fees for months after the loan is fully repaid. Read personal loan fees and fixed vs variable personal loans.
How to pay out a personal loan
- Request a payout figure in writing, valid to a specific date. It should show the balance, interest to that date and any fees.
- Check the fees against your contract. Ask the lender to explain any break cost calculation.
- Pay by the date on the figure; a later payment needs a new figure because interest keeps accruing.
- Cancel direct debits after the payout is confirmed, and check the final statement shows a zero balance.
- For secured loans, confirm that the lender removes its security interest from the Personal Property Securities Register.
- Check your credit report after a month or two to make sure the account shows as closed.
Should you pay off early or keep the money?
| Situation | Usually better to |
|---|---|
| No emergency savings | Build a buffer first, then pay extra |
| Higher-interest debts elsewhere (credit cards) | Pay those first |
| Large early repayment fee | Compare the fee with interest saved |
| Plan to apply for a home loan soon | Paying down debt can help your borrowing capacity |
| Variable loan with redraw | Extra repayments keep access to funds if redraw is offered |
To compare offers on flexibility before you borrow, see comparing personal loan quotes and fees vs rate.
Frequently asked questions
Will paying off early hurt my credit score?
Closing a loan on time or early is generally positive or neutral. Your repayment history remains on your report for two years and the account shows as closed.
Do extra repayments reduce my monthly repayment?
Usually they shorten the term while the regular repayment stays the same. Some lenders will recalculate a lower repayment on request; ask which applies.
Can I redraw extra repayments?
Only if your loan offers redraw. Many personal loans do not. If you might need the money, keep it in savings or an offset arrangement if one is offered.
Is the establishment fee refunded if I pay out early?
Generally no. Upfront establishment fees cover set-up costs and are not refunded, which is one reason fee-heavy loans cost more if repaid early.
Sources and where to check
- ASIC Moneysmart — paying off debt and personal loan calculator
- Federal Register of Legislation — National Credit Code s 78
- Personal Property Securities Register — check that a security interest has been removed
- Australian Financial Complaints Authority — disputes about payout figures and fees
